Libraries

Copyright Statement
The electronic copy of this thesis or dissertation is protected by the
Intellectual Property Code of the Philippines (Republic Act 8293) and
the E- Commerce Law (Republic Act 8792). Any other use or
publication of the thesis or dissertation shall be made only with the
consent or permission of the author or the owner of the copyright.

2401 Taft Avenue, 1004 Manila, Philippines I Tel: (632) 8524-8835 | Trunk Line: (632) 8524-4611 loc. 600
[email protected] I www.dlsu.edu.ph
 AN ANALYSIS ON THE EFFECT OF ACCOUNTING PRACTICES AND
ACCOUNTING CONTROLS ON THE BUSINESS PERFORMANCE AMONG
SELECTED MICRO-, SMALL-, AND MEDIUM-SCALE ENTERPRISES (MSMEs)
IN QUEZON CITY, PHILIPPINES

A Final Thesis Presented to the

Faculty of the Department of Accountancy
RVRCOB, De La Salle University

In Partial Fulfillment
of the Requirements for the Degree
Bachelor of Science in Accountancy

by
Baldovino, Cara Julia C.
Husmillo, Caira Andrea P.
Lim, Jose Dominick F.
Maglanque, Patrick Joseph V.

March 31, 2023

 Abstract

Micro-, Small-, and Medium-Scale Enterprises in the Filipino community play a

pivotal role in economic development. These enterprises do not only serve as a breeding

ground for the business owners’ and entrepreneurs’ wealth but they greatly contribute to

the generation of job employment and technological development. With adequate resources

at hand, micro-, small- and medium enterprises’ ability to make well-informed business

decisions translate to good organizational performance.

The study assessed the effect of accounting practices and accounting controls on

business performance using a Structural Equation Modeling (SEM) framework on Micro-,

Small-, and Medium-Scale Enterprises (MSMEs) in Quezon City, Philippines. With the

application of the Partial Least Squares - Structural Equation Modeling (PLS- SEM)

statistical tool, the researchers gathered 161 respondents which were determined using the

Inverse Square Root Method.

The findings revealed that the accounting practices of a firm have a significant

effect on its financial and non-financial measures of business performance. Moreover, the

study also revealed that the accounting controls of a firm have a significant effect on its

financial and non-financial measures of business performance.

Keywords: Accounting Practices, Accounting Controls, Business Performance, MSMEs

 Acknowledgements

The completion of this study could not have been possible without the following

people as they have shown their unending support throughout the research process and we

could not have been more grateful for them.

We would like to express our sincerest gratitude to our thesis adviser, Dr. Rodiel C.

Ferrer for his invaluable support and suggestions throughout the period of the research

work. His immense knowledge and expertise have helped us in accomplishing this

research.

Our deepest gratitude is also extended to our dear panel members, Ms.

Herminigilda Salendrez and Ms. Dianne Margareth Tang-See as they have been a great

source of guidance and motivation. They have dedicated their time and efforts in delivering

valuable contributions to achieve a quality thesis output, and for that, we greatly appreciate

their exceptional support.

In addition, we would like to thank our parents – Mr. and Mrs. Baldovino, Mr. and

Mrs. Husmillo, Mr. and Mrs. Lim, and Mr. and Mrs. Maglanque – for their unwavering

support from the beginning of this study.

Last but not the least, we would like to thank the Lord Almighty for guiding and

letting us go through the difficult times. Without You, this would not have been possible.
 Table of Contents
Chapter 1: The Research Problem 7
1.1 Background of the Study 8
1.2 Statement of the Problem 10
1.3 Objectives of the Study 11
1.4 Framework of the Study 11
1.4.1 Conceptual/Theoretical Framework 12
1.4.1.1 Decision-Usefulness Theory by George Staubus (2000) 12
1.4.1.2 Resource-Based Theory by Birger Wernerfelt (1984) 14
1.4.1.3 Stakeholder Theory by Edward Freeman (1984) 16
1.4.1.4 Agency Theory by Stephen Ross and Bary Nitmick (1973) 18
1.4.1.5 Record Continuum Theory by Frank Upward (1990) 20
1.4.2 Operational Framework 21
1.5 Assumptions of the Study 23
1.6 Research Hypotheses 24
1.6.1 Accounting Practices to Financial Measures of Business Performance 24
1.6.2 Accounting Practices to Non-Financial Measures of Business Performance 25
1.6.3 Accounting Controls to Financial Measures of Business Performance 25
1.6.4 Accounting Controls to Non-Financial Measures of Business Performance 26
1.7 Significance of the Study 27
1.7.1 MSME Owners and Managers 28
1.7.2 Investors 28
1.7.3 Academe and Future Researchers 29
1.8 Scope and Limitations of the Study 29
1.9 Definition of Terms 31
Chapter 2: Review of Related Literature 32
2.1 Introduction 33
2.2 Literature Map 33
2.3 Foreign and Local Literature and Studies 34
2.3.1 Accounting Practices 34
2.3.2 Accounting Controls 36
2.3.3 Accounting Practices and Controls of MSMEs in the Philippines 38
2.3.4 Business Performance 41
 2.3.5 Business Performance of MSMEs in the Philippines 44
2.3.6 Accounting Practices, Accounting Controls, and Business Performance 45
2.4 Synthesis 48
2.5 Research Gap 49
Chapter 3: Methodology 50
3.1 Introduction 51
3.2 Research Design 51
3.3 Population and Respondents 53
3.4 Sampling Design 54
3.4.1 Sample Size (Kock & Hadaya, 2018) 54
3.5 Research Procedures 56
3.5.1 Step one: Select the Micro-, Small-, Medium-Scale Enterprise (MSME) firms
through random sampling 56
3.5.2 Step two: Obtain, accumulate, arrange, and compute for measures of relevant
data 57
3.5.3 Step three: Data Analysis and Interpretation 60
3.6 Data Analysis 60
3.6.1 Descriptive Statistics 61
3.6.2 Structural Equation Modeling (SEM) 61
3.6.2.1 Analysis of the Measurement Model 62
3.6.2.1.1 Convergent Validity 62
3.6.2.1.2 Discriminant Validity 63
3.6.2.1.3 Common Method Bias 64
3.6.2.1.4 ​Reliability Coefficients 65
3.6.2.2 Model Fit and Quality Indices 65
3.6.2.3 Analysis of Structural Model 66
Chapter 4: Presentation of Findings, Analysis, and Implications 69
4.1 Data Results 70
4.2 Demographics 79
4.3 Discussion of Results 104
Chapter 5: Conclusions and Recommendations 111
5.1 Conclusions 111
5.1.1 Accounting Practices on Financial Measures of Business Performance 112
5.1.2 Accounting Practices on Non-Financial Measures of Business
 Performance 113
5.1.3 Accounting Controls on Financial Measures of Business Performance 114
5.1.4 Accounting Controls on Non-Financial Measures of Business
Performance 115
5.2 Recommendations 117
5.2.1 MSME Owners and Managers 117
5.2.2 Investors 118
5.2.3 Academe and Future Researchers 119
References 120
 List of Tables

Table 1. A Priori-Expectations Table 15

Table 2. Indicators, Latent Variables, and Sources of Data 42

Table 3. Cronbach’s Alpha Result for Accounting Practices and Accounting 53

Controls

Table 4. Descriptive Statistics: Accounting Practices 56

Table 5. Descriptive Statistics: Accounting Controls 58

Table 6. Descriptive Statistics: Business Performance 60

Table 7. Frequency Distribution of MSME Classification 61

Table 8. Frequency Distribution Table for Number of Employees 62

Table 9. Frequency Distribution Table for Industry Classification 63

Table 10. Frequency Distribution of Years in Operation 64

Table 11. SEM Goodness-of-Fit Measures 65

Table 12. Factor Loadings 66

Table 13. PLS-SEM Variances Explained (VAREX) 69

Table 14. PLS-SEM Regression Coefficients of Indicators 72

Table 15. Statistical Significance of Latent and Endogenous Variables 72

List of Figures

Figure 1. Decision-Usefulness Theory 5

Figure 2. Resource-Based Theory 8

 List of Figures

Figure 3. Stakeholder Theory 9

Figure 4. Agency Theory 11

Figure 5. Record Continuum Theory 12

Figure 6. Operational Framework/Schematic Diagram of the Study 13

Figure 7. Literature Map 23

Figure 8. Unmediated Model 40

Figure 9. Total Number of MSMEs in National Capital Region 41

Figure 10. Inverse Square Root Method 43

Figure 11. Research Procedures 43

Figure 12. Partial Least Squares-Structural Equation Model 77

Appendices

Appendix A. Survey Questionnaire 128

Appendix B. Statistical Results 138

Appendix C. Certificate of Validation from Statistician 145

Appendix D. Researchers’ Profile 146

Appendix E. REO Research Ethics Clearance Form 147

Appendix F. General Research Ethics Checklist 148

Appendix G. Research Ethics Checklist for Investigations involving Human 152

Participants
Chapter 1: The Research Problem

1.1 Background of the Study

Micro-, Small-, and Medium-Scale Enterprises in the Philippines have become a

pillar of economic growth as they have significantly made contributions to the country’s

labor workforce and international trade. They have similarly become important players in

the global scene. They are deemed as drivers of job creation as they account for the bulk of

employment, specifically 64.67% of the country’s total employment as reported by DTI

(2021). Maglaya (2017) argued that MSMEs are underrepresented in the international

trade, notwithstanding the fact that there is a growing number of MSMEs who supply the

export market either directly or indirectly by being involved in the production of parts and

components for regional and global value chains serving large producers locally or abroad.

To meet the day-to-day demands for goods and services, the market necessitates businesses

to either maintain or scale up its operations. In spite of the sector’s increasing growth rate

and governmental efforts that aim to revitalize both existing and new market players, the

sector has remained restrained by numerous organizational bottlenecks, causing them to fail

to move up the value chain.

Contemporary issues are attracting the attention of many researchers to understand

MSMEs inability to deal with its competitive environment. Prior studies of Dyt and Halabi

(2007), Amoako (2013), and Zhour (2010) were conducted to determine the major

problems of business owners and managers of micro enterprises and the findings pointed to
the latter’s inability to produce and keep financial records. Amoako (2013) also explored

the MSMEs record keeping strategies and found that these enterprises do not keep proper

books of accounts due to the fact that (1) owners do not see the importance of maintaining

one, (2) they lack accounting knowledge and, (3) high cost of employing professionals to

do the work. Chronic barriers also encompass MSMEs opportunity to lure financial

investors if such practices are being continued, hindering their ability to meet international

requirements and gain access to financing. Moreover, the attrition rate substantially

accelerated as reported by Lagua (2021) which can be attributed to the restricted mobility

and weakened business activity during the COVID-19 lockdown. Due to financial

restrictions, MSMEs often hire a non-accountant to prepare their annual financial

statements, who then seeks a Certified Public Accountant to sign documents in order to

comply with the tax due to the Bureau of Internal Revenue (BIR), which often results in

affecting the business performance (Ibarra & Velasco, 2015). As evidenced by multiple

studies, MSMEs would find it difficult to maximize economic potentials and attract foreign

investments if absence or inadequacy persists in proper management accounting practices

and controls in facilitating financial records.

Throughout history, countless businesses have failed, and the blame may be rested

upon the lack of information, or the proper use thereof, leading to mismanagement and

poor decision-making (Alfaro, et. al., 2015). Accounting information is an example of an

invaluable tool that is key in managerial decision-making. It serves to provide a financial

basis that will either support or oppose business strategies as evidenced by historical

financial information. With this, accounting controls and practices are mechanisms that

ensure delivery of accounting information to users. Thus, it is an important metric to

consider as it is a determinate element of managerial decision-making that pertains to a

company’s strategies in meeting organizational goals. Business performance is a common

organizational goal. It is affected by many different factors, among which include the

organization’s accounting practices and controls. Hence, this study intends to determine the

effect of accounting practices and accounting controls on a firm’s business performance

among selected Micro-, Small-, and Medium-Scale Enterprises (MSMEs) in Quezon City,

Philippines.

1.2 Statement of the Problem

For MSMEs, the most common problems that persist include: having inefficient

bookkeeping practices, incompetent use of accounting information that supports financial

decision making, and poor quality of financial facts (Karunananda & Jayamaha, 2011). It

was also stated in the studies of Bowen (2009), Germain (2010), and Kitinga (2013) that a

major reason for the collapse of MSMEs is due to poor proper bookkeeping and accounting

practices, as well as accounting controls, which are components of good business

performance.
 Therefore, this paper aims to resolve this problem by answering the question,

“What is the effect of accounting practices and accounting controls on business

performance among Micro, Small, and Medium Enterprises (MSMEs) in Quezon City,

Philippines?”

1.3 Objectives of the Study

The researchers seek to achieve the following objectives at the end of the study:

1. To determine the effect of accounting practices on business performance;

2. To determine the effect of accounting controls on business performance;

3. To identify which of the accounting practices have a significant effect on business

performance;

4. To identify which of the accounting controls have a significant effect on business

performance;

5. To set a baseline of current accounting practices being performed by MSMEs in

Quezon City;

6. To set a baseline of current accounting controls being performed by MSMEs in

Quezon City; and

7. To provide meaningful recommendations to MSME owners and managers,

accountants, investors, and future researchers resulting from the study.

1.4 Framework of the Study

 The paper discusses herein the various theoretical and conceptual bases utilized to

develop the operational framework of this study.

1.4.1 Conceptual/Theoretical Framework

1.4.1.1 Decision-Usefulness Theory by George Staubus (2000)

According to Tollerson (2012), the Decision-Usefulness Theory was first

developed by George Staubus in 2000. Its importance lies heavily on the fact that it

is the underlying theoretical basis for the FASB’s conceptual framework. Similarly,

Phornlaphatrachakorn (2019) defined accounting information usefulness as “a

capacity of information to make a difference in a decision-making process”. This

conveys that accounting can change the course of action as it influences key areas

of a business. Financial information does not only reflect the state of a business but

it provides insight to aid owners and stakeholders in developing rational economic

decisions. Without accounting information, MSME firms will find it difficult to

make sound decisions, constraining them to meet the demands and move up the

value chain. As provided by the IASB (2008), reference points are established to

assess the quality of financial statements. Regardless if the criterion is met, it is

required of business owners and managers to observe if financial statements are

being prepared in accordance with the Generally Accepted Accounting Principles

(GAAP).
Figure 1

Decision-Usefulness Theory

The idea expressing the relevance of accounting controls, particularly

through bookkeeping and financial reporting, is expanded by the study of Soyinka,

Fagbayimu, Adegoroye, & Ogunmola (2017) when they cited El-Maud et. al

(2015), stating that the philosophy of this theory lies on the optimal use of all the

available accounting information capable of making sound and informed decisions.

In addition, the study of Sutriani, Animah, and Jumaidi (2019) further expounded

on this idea by stating that financial statements can only be relevant if information

is useful to parties involved in the framework of investment, credit and similar

decisions; with such, stakeholders must attain the capability to make decisions with

the help of accounting information (Chambers in Belkoui, 2001). Herewith, the

research proponents will be applying the theory of decision-usefulness as it

encapsulates the essence of appropriate accounting practices and accounting

controls.

1.4.1.2 Resource-Based Theory by Birger Wernerfelt (1984)

Wernerfelt (1984) broadly defined resources as “anything that can be

thought of as a strength or weakness” of a firm. The core idea behind the

Resource-Based Theory (RBT), originally proposed by Wernerfelt (1984) and later

developed by Barney (1991) and other scholars, is that a firm’s effective use of

tangible and intangible resources or assets equates to their own competitive

advantage. It is mainly concerned with the idea that a firm’s internal resources can

be a direct source of advantage over its competitors that will enable long-term

growth within the organization. Moreover, a strategic resource must be valuable,

rare, difficult to imitate, and non-substitutable (Barney, 1991; Chi, 1994). Thus, it

addresses the primary issue of how superior performance can be achieved from

acquiring and exploiting unique resources of the firm, holding the market

conditions constant.

More scholars have further contributed to the resource-based perspective

such as the likes of Conner and Pralahad (1996) by arguing that sustained

competitive advantage is rooted from the unique bundle of resources at the core of

the firm, wherein it can be seen as an inside-out process of strategy formulation

 (Lukumay & Wako, 2018). The process starts by looking at what resources the firm

possesses, assessing their potential for value generating, and defining a

well-thought strategy that best captures superior performance in a sustainable way.

According to Yang and Konrad (2011), when strategic resources are used to

enable the organization to implement a certain business strategy, they become

valuable as long as they are anchored on a company’s goals. To ensure that

sustained competitive advantage can be achieved, the implementation process also

plays an important role. They elaborated that the theory is mainly focused on

organizational performance heterogeneity. This perspective is grounded on the

objective to bring together a range of internal resources, such as physical, financial,

human, and corporate capitals, that can create competitive advantage for the

organization (Yang & Konrad, 2011).

Figure 2

Resource Based Theory

 Several seminal papers used Resource-based theory to explain the effect of

accounting practices and controls on business performance such as the studies of

Harash, Al-Timimi, & Alsaadi (2014), Ahmad (2017), Lukumay & Wako (2018),

Aziz & Utami (2019), among others. More importantly, the study of Lukumay &

Wako (2018) stated that the unique bundle of internal resources, such as accounting

practices and controls, will enable sustained competitive advantage and superior

business performance among MSMEs.

1.4.1.3 Stakeholder Theory by Edward Freeman (1984)

Stakeholder Theory was initially proposed by Edward Freeman in 1984

through his landbook book, Strategic Management: A Stakeholder Approach.

Through the Stakeholder Theory, the management’s ability to meet the demands of

its stakeholders serves as a measurement of the organization's capability to be

effective and efficient (Matundura, 2014). Wherein, it is expected that these agents

included in the management satisfy the interest of these stakeholders (Olouch,

2014).
Figure 3

Stakeholder Theory

Stakeholder theory holds that the firm must provide value for all

stakeholders and not just the primary shareholders. These stakeholders are

presented through interconnected relationships between entities such as customers,

employees, investors, suppliers, communities and others that may have a stake in

the organization (Freeman, 1984). The theory therefore has implications on the

accountancy profession. One such manifestation of this theory lies in the firm’s duty

to provide value to its community through the contribution of taxes. Furthermore, it

includes the most basic organizational goal of the accretion of shareholder wealth.

This would require effective management and operations which will depend on the
financial reporting quality and accounting practices and controls, leading to an end

product of greater business performance.

1.4.1.4 Agency Theory by Stephen Ross and Bary Nitmick (1973)

The agency theory originally proposed by Stephen Ross and Bary Nitmick

(1973), and further developed by Jensen and Mecklin in 1976 presents a simplified

model of an organization, stating that it is represented by two entities. These are the

principal and the agent. Agency theory aims to describe a relationship between the

two through an illustration of roles and responsibilities (Lambert, 2006). The

principal is expected to provide capital, to bear risk, and to establish incentives.

Whereas the duty of the agent is to act on behalf of the owners, being responsible

for the decision-making of the firm.

The agency theory has long-reaching implications, including the accounting

profession. The theory has served as one of the most important theoretical

paradigms of managerial accounting for the past 25 years (Boučková, 2015). It

defines a contractual relationship between the principal and the agent. Given that

there are managerial accounting performance evaluation and organizational

problems, the agency theory is an unavoidable subject as it exposes a set of

problems as a result of the same relationship it illustrates.

Figure 4

Agency Theory

The principal and the agent have divergent interests (Shehata, 2014). The

agency theory is deemed to be characterized by information asymmetry, moral

hazard, and adverse selection, as a result of the conflicting objectives between the

principal and the agent. The behavior of the agent, and his desire to maximize his

utility function, may not always serve to benefit the principal, as the agent may not

always act in the best interest of the former (Boučková, 2015).

Disclosures through financial statements therefore serve as a safeguard

against this matter, as information is extended towards the shareholders (Lambert,

2006). Thus, the principal gains access to important accounting information

allowing for better supervision on operations, and reducing risk of moral issues that

may affect business performance. Furthermore, the existence of accounting

practices and controls that serve the purpose of increasing transparency of financial

transactions through bookkeeping and establishing uniform standards of financial

reporting can also make it easier to detect misrepresentations, thereby reducing the

risk of information asymmetry.

1.4.1.5 Record Continuum Theory by Frank Upward (1990)

The record continuum theory establishes the repetitive nature of record

keeping and accounting records are normally carried out into the future periods

(Williams, 2006). The continuum model presents the process of record keeping as

an ongoing movement in four different axes. Williams (2006) further states that the

axes generally represent the elements for establishing accountability being (1)

identity, (2) transactionality, (3) evidentiality, and lastly (4) record keeping

containers.

Figure 5

Record Continuum Theory

 Studies by Dyt and Halabi (2007), Amoako (2013), and Zhour (2010) reveal

that MSME failure often resulted from the general lack of financial records, or

controls that necessitate the creation thereof. The record continuum theory builds on

such an idea, illustrating the multi-dimensional nature of record keeping, with its

value transcending time-based or sequential perspectives. Records are believed in

this theory to be perceivable from different angles at the same time, allowing for

greater efficiency of decision-making, thereby influencing overall business

performance.

1.4.2 Operational Framework

Figure 6

Operational Framework/Schematic Diagram of the Study

 Using the theoretical frameworks summarized as follows, the paper shows in Figure

6 its schematic diagram of operational framework using the structural equation model. This

paper generally studies the effect of accounting practices and accounting controls on

business performance. It particularly explores the effect of accounting practices and

accounting controls on the financial and non-financial measures of business performance.

The paper sets accounting practices and accounting controls as the independent variables,

while business performance serves as the dependent variable.

 The paper provides in Figure 6 the variables used in the study. Latent variables

include accounting practices (AP), accounting controls (AC), and business performance

(BP). These variables are indicated by their corresponding manifest variables. Accounting

method (AM), bad debts estimation (BDE), depreciation method (DM), net receivable

estimation (NRE), business documentation (BD), and payment method (PM) denote AP,

which are adapted from the study of Ibarra and Velasco (2015). Meanwhile, cash

management (CM), fund management (FM), expenditure management (EM), accounts

payable management (APM), budget management (BM), and financial statement

preparation (FSP) signify AC, which are also adapted from the same study. Financial

measures of BP are signified by Return on Asset, Return on Equity, Current Ratio, and

Return on Sales from the study of Mendoza (2015). Lastly, non-financial measures of BP

are denoted by product quality/customer satisfaction (PQ), employee growth (EG), and

level of firm productivity (LFP), adapted from the study of Ahmad (2017). The paper also

discloses in Figure 6 the effect between the variables. Particularly, it shows the effect of

independent variables on the dependent variable.

1.5 Assumptions of the Study

The following assumptions are made regarding the study:

● Accounting practices and controls have an effect on MSMEs business

performance.
 ● The enterprises to be examined are part of the MSME sector that are based

in Quezon City, Metro Manila.

● The respondents will be sympathetic towards the main purpose of this study

and provide honest and reliable feedback from the survey questionnaires

that could aid in corroborating enough evidence to support or disprove its

first assumption.

1.6 Research Hypotheses

This section consists of various hypotheses that the researchers attempt to test and

prove, which may unify and corroborate the proposed framework of the study. It is

subdivided into six categories that show the effect of accounting practices and accounting

controls on business performance.

1.6.1 Accounting Practices to Financial Measures of Business Performance

The following items contain the first set of hypotheses of this study, which focus on

the accounting practices which could have a possible effect on the financial measures of

business performance of selected Micro, Small, and Medium Enterprises in Quezon City.

Ho1.1: The accounting practices of a firm have no significant effect on the firm’s financial

measures of business performance.

Ha1.1: The accounting practices of a firm have a significant effect on the firm’s financial

measures of business performance.

1.6.2 Accounting Practices to Non-Financial Measures of Business Performance

The following items contain the second set of hypotheses of this study, which focus

on the accounting practices which could have a possible effect on the non-financial

measures of business performance of selected Micro, Small, and Medium Enterprises in

Quezon City.

Ho2.1: The accounting practices of a firm have no significant effect on the firm’s

non-financial measures of business performance.

Ha2.1: The accounting practices of a firm have a significant effect on the firm’s

non-financial measures of business performance.

1.6.3 Accounting Controls to Financial Measures of Business Performance

The following items contain the third set of hypotheses of this study, which focus

on the accounting controls which could have a possible effect on the financial measures of

business performance of selected Micro, Small, and Medium Enterprises in Quezon City.

Ho3.1: The accounting controls of a firm have no significant effect on the firm’s financial

measures of business performance.

Ha3.1: The accounting controls of a firm have a significant effect on the firm’s financial

measures of business performance.

1.6.4 Accounting Controls to Non-Financial Measures of Business Performance

The following items contain the fourth set of hypotheses of this study, which focus

on the accounting controls which could have a possible effect on the business performance

of selected Micro, Small, and Medium Enterprises in Quezon City.

Ho4.1: The accounting controls of a firm have no significant effect on the firm’s

non-financial measures of business performance.

Ha4.1: The accounting controls of a firm have a significant effect on the firm’s

non-financial measures of business performance.

Table 1

A-Priori Expectations Table

Relationship A-priori Supporting Supporting

Between Expectations Theories Studies

Decision-Usefulness Harash, Al-Timimi, &

Accounting
+ Theory Alsaadi (2014); Ahmad
Practices and
(2017); Aziz & Utami
Business Resource-based (2019); Balagobei (2020);

Performance Theory Ofoegbu, Okolo, and Nsoke

(2021)

Record Continuum

Theory

+ Decision-Usefulness Ibarra & Velasco (2015)

Theory Maseko & Mayani (2011);

Zotovroie (2017); Lingga

Accounting Controls Resource-based (2013)

and Business Theory

Performance

Agency Theory

Stakeholder Theory

1.7 Significance of the Study

This study will be conducted with the objective of determining the effect of

accounting practices and controls on the business performance of MSMEs in Quezon City.

This study is intended to benefit MSME owners and managers, investors, and members of

the academe.
1.7.1 MSME Owners and Managers

The study is expected to benefit MSME owners and managers through

providing evidence as to whether the presence and application of accounting

practices and controls affect business performance. Through such discovery, owners

and managers of MSMEs will be able to determine their desired level of

commitment and investment towards the implementation of accounting practices

and controls towards the pursuit of greater business performance, or otherwise.

1.7.2 Investors

The study is expected to benefit existing and potential investors through

providing empirical evidence that accounting practices and controls have an effect

on MSME business performance. Through the findings of the study, investors will

gain understanding of the impact of accounting practices and controls that facilitate

the production of financial information and how the latter can be employed in the

decision-making process. Investors can further analyze opportunities that would be

of great value to them while weighing the risks associated with the decision to

invest through the financial statements.

1.7.3 Academe and Future Researchers

 The study is expected to benefit members of the academe, including future

researchers through establishing the effect of accounting practices and controls on

MSME business performance. This study also aims to aid in better establishing a

framework for measuring business performance, through a review of related

literature, as well as in better establishing indicators of common accounting

practices and controls being applied by MSMEs. Finally, future researchers can

expand on this research through exploring and expanding beyond the study’s scope

and limitations. Members of the academe can likewise use this study as additional

reference in lectures regarding the importance and effects of accounting practices

and accounting controls on business performance.

1.8 Scope and Limitations of the Study

The study focuses on twelve classifications defining accounting practices and

controls which includes accounting method, bad debts estimation, depreciation method, net

receivable estimation, business documentation, payment method, cash management, fund

management, expenditure management, accounts payable management, budget

management and financial statement preparation. The dependent variable of business

performance shall be determined using the indicators of financial and non-financial

performance measures including Return on Asset, Return on Equity, Current Ratio, Return
on Sales, growth in number of employees, product quality/customer satisfaction, and level

of firm productivity.

To ensure the presence of Accounting Control and Practices, the researchers will

only include Micro-, Small- and Medium-Scale Enterprises that are registered with the

Bureau of Internal Revenue (BIR) since they are required to keep and maintain accounting

records and financial statements by the agency regularly. One of the limitations of this

study is that the researchers will not be able to obtain the respondent’s financial statements

due to budget restrictions towards acquiring financial statements and poor response rates

from government agencies, and concerns regarding the companies' confidentiality.

Nonetheless, the researchers will be acquiring data in accordance with the retrieved review

of related literature and studies.

Furthermore, to acknowledge the profound consequences of the COVID-19 crisis,

another scope limitation identified by the researchers links to the impact brought by the

pandemic to the firms’ economic and financial performance. Hence, it is important to

assume that the MSMEs’ judgment and evaluation on their performance is affected by

prevailing market and economic conditions during the surge of the outbreak.

The researchers will be conducting a survey to a minimum number of 160

respondents of accounting controllers, managers, owners, or any such other person within
the firm that is responsible for duties concerning such matters, and is knowledgeable about

such topics. The research instrument will be facilitated in Quezon City, Philippines.

1.9 Definition of Terms

Accounts Payable Management - This refers to the frequency on how often the company is

able to pay its debts. The company keeps track of its payable in order to identify which

items are due for payment (Ibarra & Velasco, 2015).

Accounting Control - the process of generating a system that focuses on the accounting

component of an entity in an organizational level in order to ensure that the company goals

are achieved when the money flows (Broadent & Laughlin, 2013)

Accounting Practices - The procedures that accounting departments use for the creation and

documentation of the company’s business transactions (Balagobei, 2020).

Cash Management - The method on how the company manages their cash on hand or cash

in bank. This would include how often the company deposits their cash and manages their

bank (Ibarra & Velasco, 2015).

Expenditure Management - This concerns the company’s method on how they keep track of

their daily expenditure. For Small enterprises, they most often use a log book or list of cash
paid to maintain a record of their payables and account balances at the end of the day

(Ibarra & Velasco, 2015).

Financial Statement Preparation - This refers to the process of how an accountant prepares

financial statements (Ibarra & Velasco, 2015).

Fund Management - The company’s process on how they conduct their financial planning

and budget preparations. Financial planning covers the proper estimation and the

management of capital and operating expenses. Meanwhile, budget preparations include

areas that determine their future cash needs for them to set a limitation on handling their

expenditures (Ibarra & Velasco, 2015).

 Chapter 2: Review of Related Literature

2.1 Introduction

This literature review aims to establish the soundness of the framework that was

proposed by the researchers which will be heavily supported by delving deeper into various

literature and studies, both foreign and local, that had worked on and examined closely the

relationships of the research’s variables that comprise the framework. Particularly, this

chapter will be focusing on the previous works that have analyzed the following sets of

variables: accounting practices, accounting controls, business performance, and the

interaction between them.

2.2 Literature Map

Figure 7

Literature Map
 The literature map in figure 7 presents the related literature used by the

researchers in conceptualizing the research problem. The boxes in blue represent

the independent variables, while the box in yellow represents the dependent

variable.

2.3 Foreign and Local Literature and Studies

2.3.1 Accounting Practices

Accounting practices are the procedures that accounting departments use for

the creation and documentation of the company’s business transactions. The

importance of these practices cannot be overemphasized as its capability to produce

reliable financial information consistently is imperative to make effective financial

decisions concerning business entities. Therefore, it is fundamental that these

practices supply potential and appropriate financial information to ensure that sound

economic decisions will be made by entrepreneurs (Balagobei, 2020). Furthermore,

Musah, Gakpetor, and Pomaa (2018) expounded on this idea by stating that these

practices are important to the survival of MSMEs based on various studies of

Bowen (2009) and Isa, Saleh, & Saipei (2007) because it enables small companies

to acquire accurate and useful information on which to base decisions.

Despite the invaluable benefits and trade-offs that necessitate the

implementation of appropriate accounting practices, the majority of MSMEs

continue to have inadequate practices (Alebachew, Alem, and Zelie, 2020). The

same study by Alebachew, Alem, and Zelie (2020) discovered that the main

determinants and factors that influence the implementation thereof are the education

level, the number of employees, the frequency of transactions, and the firm's size,

while the age of the firm has no statistical relationship with the former. Thus, the

bigger the firm, the more accounting practices are being implemented. The study

confirms that MSMEs, which have relatively small asset and capital balances, often

have poor and inadequate practices.

 A study by Ofoegbu, Okolo, and Nsoke (2021) among MSMEs in Nigeria

found that the presence of accounting practices positively influences the growth of

companies. It is therefore an important aspect that is essential to not only the

survival of the firm, but also to continuous and sustained growth, that is instead

often neglected. Ghani et al. (2018) also carried out a study to examine the

relationship of differing accounting methods applied on biological assets and its

impact on quality financial reporting; and the authors concluded that financial

reporting volatility differed across accounting methods used by companies. Thus,

the usefulness of financial information is also impaired by inconsistent accounting

practices, which in turn affect the aptness and accuracy of managerial decisions

influencing the business performance of the company.

2.3.2 Accounting Controls

As established by Broadent & Laughlin (2013), accounting control is

involved with the process of generating a system that focuses on the accounting

component of an entity in an organizational level in order to ensure that the

company goals are achieved when the money flows. The accountability reports and

traditional forms of accounting were utilized as a basis to construct the system

along with the knowledge of accountants and other professionals such as managers,

politicians, and governing public sector organizations. Accountability reports

include information as to the process of achieving goals when money is received.

Whereas, Traditional Accounting carries information from Financial Accounting

Statements, and Management Accounting Reports. For efficient accounting control,

it was recommended that the control systems should be aligned with the business

strategy of the organization. It was established that Accounting Controls should be

designed differently that would suit a specific business strategy (e.g. cost

accounting systems, budgeting systems, responsibility reporting systems) (Simons,

1987).

One of the more prominent and reverberating components of accounting

controls is financial reporting. Financial reporting, which is defined as the

end-product of bookkeeping, provides evidence of how transactions were handled

and substantiates the steps that were taken in order to comply with business

standards (Reed, 2010). Maseko and Mayani (2011) accentuated the importance of

MSMEs accounting controls by establishing that the recording of complete and

relevant financial information allows companies to further rely on these reports to

make intelligent business estimates and economic decisions. Despite this, the

majority of MSMEs continue to neglect the adoption of accounting controls,

particularly the preparation of financial statements.

Zotovroie (2017) has identified that MSMEs in Ho Municipality, Ghana fail

to keep proper books of account and prepare financial statements that impedes its
ability to generate viable information resources. Similar findings were found from

the study conducted by Lingga (2013) on the controls to ensure bookkeeping of

MSME in Bandung, Indonesia, which revealed that the majority of MSMEs in the

region fail to prepare financial statements due to several reasons including lack of

accounting skill and knowledge and weakness of law enforcement. Following these

issues, the use of various methods and controls have somewhat led to the deterrence

of harmonization in the accounting presentation and disclosure (Sadeghi et al.,

2015). The above issues examined by Zotovroie (2017) and Santos (2019), weak

accounting practices and controls may impact the core outputs such as the financial

statements.

2.3.3 Accounting Practices and Controls of MSMEs in the Philippines

As initiatives were put forward to support the growth and advancement of

MSMEs in the Philippines, the adoption of PFRS for SMEs have also set the scene

for a more simplified approach in the use of accounting practices and principles. It

bears noting, unlike other countries, the Philippine Bureau of Internal Revenue

requires compliance work from the sector’s enterprises relating to (1) observation of

bookkeeping records and supporting documents evidencing business transactions,

(2) preservation of books of accounts. Despite the growing economy contributed by

the increased players, Ibarra and Velasco are two of the few Filipino researchers

who have authored a study on MSMEs accounting processes and controls. More
specifically, a comparative study on businesses from Metro Manila and Quezon

Province. The researchers assumed that there is no significant difference between

MSMEs in Metro Manila and Quezon Province on their accounting knowledge,

practices and controls. However, data results conveyed the contrary. Using the

analysis of variance (ANOVA) to test its hypotheses, Ibarra and Velasco confirmed

that MSMEs’ level of knowledge on accounting practices vary from those of sited

in Quezon Province. Respondents from Metro Manila got the highest weighted

mean of 3.8 which are manifested in three concepts namely, understandability,

timeliness and consistency. Quezon Province, on the other hand, showed a 2.9 mean

on two concepts: understandability and completeness. Even though companies

are competing through technological and IT sophistication to win the competition

(Sutriani et. al, 2019), study findings showed that MSMEs still practice basic

accounting controls, and computers are not commonly used to execute such. They

only maintain a logbook or a list of cash paid for a particular day to record their

expenditures. The list is used to reconcile cash balance and the current approach,

however, does not seemingly address the problem of imbalanced cash. Additionally,

the most common practices utilized are the cash basis accounting method, bad debt

estimation based percent of credit sales, straight line method of depreciation, net

receivable estimation based on allowance for sales returns, official receipt as

business document and cash payment method.

 In another study individually led by Velasco (2014), he extended his study

on MSMEs by exploring the Calabarzon Region as it ranked as the second most

numbered in 2011. The purpose of Velasco’s study was to determine if MSMEs part

of the region have complete understanding and follow accounting principles. It

employed the use of surveys as the primary means of gathering data to assess the

current situation of the sector in the region. The data results provide a perspective

on the discrepancies between the business owners’ knowledge and level of

understanding on accounting practices, and it categorized the latter at a critical

level. It has specifically identified five (5) areas of concerns which are the

following: entity concept, expense recognition, funds theory, proprietary theory, and

residual theory. The lack of understanding beyond the figures took part as one of the

major concerns identified in the results of Velasco’s study. Results of the study

revealed that the majority of the MSMEs only prepare statements of income and

expenses primarily due to the determination of tax due. In addition, results

disclosed accuracy-related concerns as it became a practice for businesses to lessen

the burden of heavy taxes and charges through miscalculating its income and

expense data.

A business is nothing but an entity. The entity concept is one of the simplest

but essential concepts that prompts business owners to perceive personal records are

different from business affairs; therefore managed separately. Business owners,

nonetheless, associate their personal affairs through the use of business funds which

was found most present in sole proprietorship and family-owned businesses

(Velasco, 2014). Moreover, absence of accounting methods to manage assets were

identified due to nonrecognition of depreciable costs and bad debts relating to the

appropriate asset items. These are just a few of the problems but from the author’s

findings, weak compliance to accounting principles and methods all boils down to

deeming the purpose of accounting as a mere prerequisite in establishing a business.

Similar findings were found from the study conducted by Santos (2019) on the

bookkeeping practices of MSME in the Province of Quezon, Philippines that further

led to pushing an advocacy for Business Stability program. MSMEs in Quezon,

despite their full awareness on the stipulated requirements in the NIRC, are

precluded from using financial reports in the performance evaluation and

decision-making process due to constraints.

2.3.4 Business Performance

Experts in the field of performance measurement frequently use the term

“business performance measurement systems (BMP) without providing a clear

definition of it (Franco-Santos et. al. 2007). Karakas and Yildiz (2012) pitched the

definition of business performance being a measure of how effective an

organization is at meeting their goals. Thus, it can be inferred from such proposals

that the measurement of business performance is largely subjective and varies on a

firm to firm basis, depending on the organization’s particular goals. According to

Tangen (2003), the traditional means of measuring business performance is through

financial measures, the most common of which being a measure of profitability.

However, Arifeen, et. al. (2014) states that relying on financial information as

means of measuring business performance is ineffective as it does not take into

consideration non-monetary aspects of quantification.

The study by Franco-Santos et. al. (2007) continues to build on this idea by

studying how scholars describe the parameters for such a system, revealing that

business performance is often measured through both financial and non-financial

measures. Prieto and Villadolid (2006) described the interrelationship between

financial and non-financial performances of an organization, establishing a

significant positive relationship between the two. Thus, it is imperative to consider

non-financial components in measuring financial indicators as the two are deeply

correlated and therefore affect each other to a great degree. Blackburn et. al. (2013)

noted that the key to measuring business performance lies in the framework

developed by Storey (1994). These factors being employment change, turnover

change, and profitability. Profitability therefore is the most common financial

metric being used to measure business performance. On the other hand, Aziz &

Utami (2019) deemed it sufficient to use three indicators for the determination of

MSME business performance, which are (a) an increase in business volume, (b)
increase in profits, and (c) increase in number of employees, based on a framework

developed by Pratiwi (2008). The same is used by a study conducted by Minuzu

(2010). Karakas & Yildiz (2012) also determined that over 62.9% of literature

prefer the use of subjective criteria in measuring business performance which

involves measures of profitability and sales, as opposed to the use of objective

criteria which uses return on assets, and return on equity, among others. It is,

however, of no consequence as subjective measurements are deemed to be

consistent with objective measurements and have a high level of reliability and

validity (Dess and Robinson, 1994). MSMEs are often extremely cautious with

business financial data which makes subjective performance information data much

easier to gain access to rather than financial statements. Furthermore, MSME

financial data are often absent or incomplete. When available, most are difficult to

interpret (Covin and Slevin, 1989; Tumiwa and Tuegeh, 2019).

Business performance is widely agreed to be a culmination of the effects of

both internal and external factors (Nagy, et. al., 2020). An example of a common

and well-established measure of internal performance relating to external outcomes

is the balanced scorecard (Kaplan & Norton, 2001). However, the balanced

scorecard is impractical among MSMEs as MSME conditions are vastly different

from larger organizations for whom the balanced scorecard is more applicable for

(Gumbus & Lussier, 2006). Arifeen, et. al. (2014) concluded that the measurement
of business performance is still subject to much debate however, the general factors

influencing the selection of a criteria are objective measurement, the level of detail

required, availability of time for measurement, the current default data available,

and cost incurred for measurement.

2.3.5 Business Performance of MSMEs in the Philippines

MSMEs have been identified as the economic drivers of the Philippine

economy. The business performance of MSMEs in the country have therefore been

studied throughout different literatures. The study by Paggadut (2021) among

MSMEs in the National Capital Region outlined the financial factors that affect

business performance which includes debt ratio, asset turnover, and gross profit

margin. The three were determined to have a significant positive effect on the

business performance of the corresponding firms which means that the use of

financial information through ratios are effective metrics through which the

business performance of a firm can be measured and predicted.

Malalauan (2019) studied the business performance of MSMEs in Lipa,

Batangas through comparing cash conversion cycles with both the financial and

non-financial performance of the responding companies. The general assessment of

the financial and non-financial performance of firms within the regional focus of

the study were deemed “effective” and it was established that the use of cash
conversion cycles are yet another effective way of measuring business performance

among MSMEs. Additionally, a study by Mendoza (2015) among MSMEs in the

CALABARZON region yielded a conclusion that MSMEs within the regional focus

of the study were of sound financial health as determined through the method with

which the business performance of the firms were measured. This research used

liquidity, activity, and leverage ratios in determining the financial health of the

MSME respondents.

2.3.6 Accounting Practices, Accounting Controls, and Business Performance

When it comes to understanding the significant effect of accounting

practices and accounting controls to an entity’s business performance, it is

imperative to consider previous studies that show why Small and Medium Scale

Enterprises (MSMEs) fail today in relation to their business performance. For

instance, Yousef (2013) conducted a study showing that among the enterprises

belonging to the aforementioned classification, there is a low level of awareness on

the significance of financial management, and accounting information and practices

in the south district of Jordan. This also reaches the same conclusion with another

study which found that the majority of MSMEs fail to keep proper accounting

records because they feel that it is not necessary, time-consuming, and expensive

(Amoako, 2013), thus, making it a significant issue for business success.

 Further studies also reveal how significant accounting practices and controls

are on the performance of a business. In the study of Maseko and Manyani (2011),

they found out that record keeping was not practiced within organizations in

Zimbabwe because of lack of accounting knowledge on the practices and controls.

This was also the case in the study of Amoako (2013) where he cited that poor

accounting practices is a cause for start-up business failure not only because there is

low priority attached to it, but also a lack of the fundamentals in the field of

accounting. Thus, they recommended that the national authorities should develop

specific guidelines and facilitate programs to train entrepreneurs and the members

of their management to maintain high and generally accepted accounting practices.

To further establish the link between accounting practices and business

performance, Okoli (2011) and Onaolapo and Adegbite (2014) investigated the

impact of accounting practices, especially on record keeping on the business

performance of Small and Medium Scale Enterprises (MSME) which both revealed

in order to enhance the profitability of these enterprises and their continuity,

accounting practices must be prioritized and utilized effectively in the company that

will help the proprietors to keep track of their performance. Similarly, the study by

Agbemaya et. al (2016) showed a positive association between financial reporting

practices and profitability of Small and Medium Scale Enterprises (MSMEs) in Ho

Municipality that assist the managers and owners in decision making to expand its
capital and operations. Mutua (2015) also examined the effect of the

aforementioned variables on business performance. Results show that since the

majority of MSMEs in Kenya do not keep proper books of account, it affects their

ability to make sound business decisions, fulfill tax obligations, and raise capital

from creditors and investors to support the operations. Hence, proper bookkeeping

practices influence not only the financial performance, but also the growth and

continuity of MSMEs to stay afloat in the competition (Mutua, 2015).

It is well established that the utilization of financial information is extremely

important especially for MSMEs due to the relative volatility associated with their

operations including unstable cash and profit positions, as well as an increased

reliance on short term borrowings (Dodge, et. al., 1994). Animah, et. al. (2019)

determined that accurate accounting information is essential to making the correct

business decisions, creating a competitive advantage as a result. The ability to

compete determines the survival of a company (Handayani, 2007). Thus, given that

the utilization of accurate accounting information creates a competitive advantage,

effective accounting practices and controls that ensure quality financial reporting

are essential organizational functions.

Okoli (2011) establishes a relationship between correct and proper record

keeping with profitability of small enterprises and states that adequate record
 keeping is essential to profitability and business continuity as it provides a metric

with which to ascertain business performance.

2.4 Synthesis

The various studies and literature so forth reviewed and used by the researchers as

references herein provide a valuable perspective with which to approach the research

problems with, and to serve as benchmarks and precepts that will guide the researchers in

operationalizing the variables and achieving the ultimate goal of meeting the research

objectives. The review of related literature was performed with the intention of seeking

relevant and established papers that would affirm and support the proposed research

framework. There are a number of studies that explore the same variables and the

relationships in between. However, the related literature was not able to study extensively

the effect of accounting practices and accounting controls on business performance in the

local setting that is critical to the researchers’ study. Thus, the researchers view this gap as

an opportunity to expand and investigate these unexplored relationships that are relevant to

this paper’s set of hypotheses.

The review of related literature served as an instrument for the researchers to

strengthen their knowledge on the different variables that will be used in the study. A major

portion of the section was devoted to identifying the measurement bases for each of the

variables. This information is vital to the performance of the study as it serves as a

guideline in developing the research instrument that will be used in measuring the

variables. The studies generally agree on the applicable measurement bases that are used in

similar papers. For accounting practices and accounting controls, these are the accounting

standards that are provided for by the GAAP. Business performance is measured through a

combination of financial and non-financial factors.

Relationships exist between the three variables of the study as evidenced by the

literature studied in this section. Positive effects exist on accounting practices, accounting

controls, and business performance. Lastly, there is a lack of study that specifically pertains

to these three variables in the Philippine setting. Furthermore, the studies on such

relationships have innate limitations, as provided by the scopes of study. The researchers

see this as an opportunity to explore and expand on the literature, towards the goal of

meeting the research objectives.

2.5 Research Gap

Accounting practices and accounting controls have a definite effect on the business

performance of an organization. However, accounting practices and controls have a wide

variety of applications in an organization. It can be exercised through managerial

accounting practices, asset management, equity utilization, and tax policy or compliance,

among other means of demonstration.

 A wide amount of literature explored the use of accounting practices and controls,

and its effect on business performance and concluded that there exists a link between the

two aforementioned variables. While most studies, such as Sutriani, Animah, & Jumaidi

(2019) and Aziz & Utami (2019), focused on the importance of accounting information as

core output of accounting practices and accounting controls and has been cited in larger

entities, there are scarce attempts in further examining the issue in the MSME sector. There

is rich data that further explains the significance of maintaining good accounting practices

and controls in a business as such contributes to the latter’s critical decision-making,

translating to how a business performs. The absence of sufficient empirical evidence in the

local setting complicates the data acquisition process. To enrich the information in this

area, the gap motivates the proponents to investigate and understand the management

accounting practices and controls of MSME and how it impacts the firm’s business

performance.
 Chapter 3: Methodology

3.1 Introduction

The subsequent segments of this research paper will focus on the related research

design, sampling method, and population that were utilized to fulfill the general and

specific objectives of the study and provide extensive evidence supporting the established

research hypotheses. It also includes a brief overview of the research procedure that was

conducted together with various data analyses that best illustrate the statistical methods

used to collect the desired data for the study.

3.2 Research Design

To verify and further substantiate the effect of accounting practices and accounting

controls on business performance, the researchers applied a causal-explanatory research

design. The paper’s main objective was to investigate the effect of accounting practices and

accounting controls on a firm’s business performance. By using a causal-explanatory

research design, the researchers were able to acquire critical knowledge of the relationships

between variables and establish its significance to the objectives of the study. This research

further sought to explain the causality of the variables and the factors that may potentially

influence business performance, namely, (1) accounting practices, and (2) accounting

controls. More importantly, the subcomponents of accounting practices were evaluated.

This consisted of accounting method, bad debts estimation, depreciation method, net

receivable estimation, business document preparation, and payment method. Under

accounting controls, the subcomponents are cash management, fund management,

expenditure management, accounts payable management, and financial statement

preparation, which are all adopted from the study of Ibarra and Velasco (2015). To identify

the financial measures of business performance, the subcomponents were adopted from the

study of Mendoza (2015). Lastly, the subcomponents of non-financial measures of business

performance are employee growth and level of firm productivity, adopted from the same

study, of selected Micro-, Small-, Medium-Scale Enterprises (MSMEs) in Quezon City,

Philippines.

To achieve the aforementioned goal of this research paper, the researchers deemed it

necessary to apply the mediation framework. This was well-explained by Mackinnon

(2015) wherein he stated that an unmediated model lies on the assumption that independent

variable X has a direct and total causal effect on dependent variable Y (refer to Figure 8).

Figure 8

Unmediated Model

Note. Adapted from Mackinnon, D. (2015). Mediating Variable. In International

Encyclopedia of the Social & Behavioral Sciences: Second Edition, 64-69.

3.3 Population and Respondents

The population of the study consisted of Micro-, Small- and Medium Enterprises

(MSMEs) in Metro Manila, Philippines that satisfied the following characteristic: micro if

it has up to Php 3,000,000 asset size, small if it has Php 3,000,001–15,000,000 asset size,

medium if it has Php 15,000,0001–100,000,000 asset size. To narrow down the scope, the

study was conducted in Quezon City as it represents the highest concentration of MSME

firms among other cities and municipalities within the Metro (Philippine Statistics

Authority, 2022). This study specifically included the following areas: Barangay Bagong

Pag-asa, Barangay Santo Cristo, along Katipunan Avenue, and Banawe Avenue of Quezon

City, Metro Manila. More precisely, the number of established Micro-, Small-, and

Medium-Scale Enterprise (MSMEs) in Quezon City are 41,888, 6,304, and 317,

respectively (refer to Figure 9).

Figure 9

Total Number of MSMEs in National Capital Region

Note. Adapted from Department of Trade and Industry Philippines

3.4 Sampling Design

The study employed random sampling as its primary method to provide the

population an equal and fair probability of being selected to participate. This method was

chosen as the main sampling method due to the limitations on access and information

regarding the wide population. The researchers randomly selected respondents from the

population, being Micro-, Small- and Medium Enterprises (MSMEs) in Quezon City,

Philippines.

3.4.1 Sample Size (Kock & Hadaya, 2018)

 The sample size for this study was a minimum of 160 respondents which

was acquired using the Inverse Square Root Method, which was one of the

proposed methods for minimum sample size estimation on the study of Kock and

Hadaya (2018), that uses the inverse square root of a sample’s size for standard

error determination. Based on this method, the minimum sample size was computed

through the formula shown in figure 11. It may also be computed using the excel

through the function ROUNDUP((2.486/bmin)^2,0), where bmin is the name of a

cell that stores the value of |𝛽|min.

Figure 10

Inverse Square Root Method

Note. Adapted from Kock, N., & Hadaya, P. (2018). Minimum sample size estimation in

PLS-SEM: The inverse square root and gamma-exponential methods.

3.5 Research Procedures

Figure 11

Research Procedures

3.5.1 Step one: Select the Micro-, Small-, Medium-Scale Enterprise (MSME)

firms through random sampling

The data that was used in meeting the research objectives was obtained

through the administration of survey questionnaires. The Inverse Square Root

Method was used as proposed by the group’s statistician, based on the study of

Kock and Hadaya (2018), the minimum sample size was targeted at 160

respondents which are Micro-, Small-, Medium-Scale Enterprises (MSMEs)

situated in Quezon City.

3.5.2 Step two: Obtain, accumulate, arrange, and compute for measures of

relevant data

Subsequent to the determination of the Micro-, Small-, Medium-Scale

Enterprises (MSMEs) that participated in the study, the researchers gathered

relevant information pertaining to the sample through primary sources, particularly,

survey questionnaires. Approximately 160 MSME owners, managers, accounting

controllers, or any other such persons within the firm knowledgeable of such

information within such firms in Quezon City, Philippines served as the participants

of the survey to measure their accounting practices, accounting controls, and

business performance. The respondents were selected through random sampling

from a list of registered businesses meeting the mentioned qualifications obtained

from the Business Permit and Licensing Department of Quezon City. Information

gathered through the survey was acquired from questionnaires adapted from Ibarra

and Velasco (2015) for accounting practices and accounting controls, and Ahmad

(2017) and Mendoza (2015) for business performance through a Likert scale.
 The researchers administered the survey questionnaire by personally visiting

the business enterprises and by conducting a guided survey questionnaire to cater to

additional questions that arose. Furthermore, the data gathered from the surveys

were used to further examine the effect of accounting practices, accounting controls

on business performance through Partial Least Squares - Structural Equation Model

(PLS-SEM) statistical tool.

Table 2

Indicators, Latent Variables, and Sources of Data

Independent Variable Dependent Variable

Indicators Construct (Latent Indicators Construct Source/s

(Observed Variables) (Observed (Latent

Variables) Variables) Variables)

Accounting Accounting Practices Financial Business Adapted

Method measures Performanc Questionnair

(Current Ratio, e e (Ibarra &

Bad Debts Return on Velasco,

Estimation Asset, Return 2015; Abbod,

et. al, 2018;

Depreciation on Equity, and Sripan &

Method Return on Sales) Wisaeng,

2022)

Net Non-financial

Receivable measures

Estimation (employee

growth, level of

Business firm

Documents productivity)

Payment

Method

Cash Accounting Controls Financial Business Adapted

Managemen measures Performanc Questionnair

t (Current Ratio, e e (Ibarra &

Return on Velasco,

Fund Asset, Return 2015;

Managemen on Equity, and Mendoza

t (2015);
 Return on Sales Abbod, et. al,

Expenditure ) 2018; Sripan

Managemen & Wisaeng,

t Non-financial 2022)

measures

Accounts (employee

Payable growth, product

Managemen quality/custome

t r satisfaction,

and level of

Financial firm

Statement productivity)

Preparation

3.5.3 Step three: Data Analysis and Interpretation

Subsequent to the data gathering process through surveys, the researchers

were then tasked to evaluate, analyze, and interpret the data using an appropriate

statistical tool.

3.6 Data Analysis

 This section expounds on the various statistical tools and techniques that were

utilized in this study, particularly on the Structural Equation Model (SEM).

3.6.1 Descriptive Statistics

The primary variables of the study along with the collected data were

summarized using the descriptive statistics such as the means, standard deviations,

skewness coefficients, and correlation coefficients. These descriptive statistics

provided a comprehensive description of the variables of the study. While the

means and standard deviations provided the description of the variables in terms of

central location and variability, the skewness coefficients provided the information

about the degree of symmetry and asymmetry of the distribution of the variables

and the correlation coefficients provided information about the direction and

strength of relationship among the variables.

3.6.2 Structural Equation Modeling (SEM)

In the literature, there were two types of structural equation modeling

(SEM), namely: Partial Least Squares SEM (PLS-SEM) and Covariance-based

SEM (CB-SEM). In this paper, the PLS-SEM was utilized in investigating the

relationship among the variables under consideration, specifically in testing the

hypotheses, because in comparison to the CB-SEM, it requires less stringent

assumptions related to measurement levels of the manifest variables, multivariate

normality, and sample size (Dimaunahan & Amora, 2016; Hulland, 1999).

Typically, using the PLS-SEM, the data analysis is performed into two sequential

stages: Analysis of the measurement model in the first stage and analysis of the

structural model in the second stage (Amora, 2021; Amora et al., 2016).

3.6.2.1 Analysis of the Measurement Model

Measurement model is the link between the latent variable and its

corresponding question-statements (or indicators). Hence, analysis of the

measurement model included the assessment of convergent validity, discriminant

validity, and reliability (Amora, 2021; Kock, 2014).

3.6.2.1.1 Convergent Validity

According to Kock (2014), a measurement instrument has good

convergent validity if the question-statements associated with each latent

variable are understood by the respondents in the same way as they were

intended by the designers of the question-statements. Hence, assessment of

convergent validity is an analysis of the links between question-statements

and latent variables based on factor loadings and cross-loadings. Factor

loadings ( or indicator loadings) are the coefficients of the

question-statements with the primary latent variable, while the

cross-loadings are the coefficients of the question-statements with the other

latent variables. In concluding that the latent variable (i.e., measurement

model) has acceptable convergent validity, the loadings-approach criteria

discussed in Amora (2021) will be utilized, namely: 1) the indicator

loadings should be .50 or higher (Kock, 2020; Kock, 2014); 2) the P-values

associated with the indicator loadings should be less than .05. (Kock, 2020;

Kock 2014); and 3) the cross-loadings should be low (Amora, 2021) relative

to the indicator loadings. Following the recommendation of Amora (2021),

indicators for which the three criteria are not satisfied may be excluded in

the analysis. Another method of assessing convergent validity is through

the use of an average variance extracted (AVE). Convergent validity is

evident if the AVE is .50 or higher (Fornell & Larcker, 1981; Kock & Lynn,

2012; Kock, 2020).

3.6.2.1.2 Discriminant Validity

According to Kock (2020), a measurement instrument has good

discriminant validity if the question-statements (or other measures)

associated with each latent variable are not confused by the respondents, in

terms of their meaning, with the question-statements associated with other

latent variables. Two approaches of assessing discriminant validity will be

used in the present study. The first will be based on the criterion

recommended by Fornell and Larcker (1981) which states that to have a

discriminant validity, the square roots of the AVE of the latent variables

should be larger than the correlations among the latent variables. The second

will be based on the criterion provided by Henseler et al. (2015) which

states that the discriminant validity is best if the HTMT is less than .85 and

good if less than .90.

3.6.2.1.3 Common Method Bias

According to Kock (2020), common method bias in the context of

PLS-SEM is a phenomenon that is caused by the measurement method used

in an SEM study, and not by the network of causes and effects in the model

being studied. He further stressed that the instructions at the top of a

questionnaire may influence the answers provided by different respondents

in the same general direction, causing the indicators to share a certain

amount of common variation. Another possible cause of common method

bias, according to Kock, is the implicit social desirability associated with

answering questions in a questionnaire in a particular way, again causing the

indicators to share a certain amount of common variation. In the present

study, the full collinearity VIFs will be used to assess the common method

bias (Kock, 2020; Kock, 2015; Kock & Lynn, 2012). A full collinearity

VIFs of 3.3 or lower suggest the existence of no common method bias

(Kock, 2015; Kock & Lynn, 2012).

 3.6.2.1.4 ​Reliability Coefficients

Composite reliability, also called Dillon–Goldstein rho coefficient, is

a measure of reliability associated with a latent variable. The composite

reliability coefficient, which is slightly higher than the Cronbach’s alpha

coefficient, takes the indicator loadings into consideration in its calculation

(Kock, 2020). The present study will use both the composite reliability and

Cronbach’s alpha coefficients. Based on the conservative criterion

discussed in Kock (2020), both the composite reliability and the Cronbach’s

alpha coefficients should be equal to or greater than 0.70.

3.6.2.2 Model Fit and Quality Indices

Essentially, PLS-SEM is a two-stage approach. Stage 1 is the analysis of the

measurement model, while Stage 2 is the analysis of the structural model. The

measurement model was already discussed in the previous section. Before the

discussion of the structural model, the criteria in assessing the model fit and quality

indices are presented first. Misfit models would lead to erroneous research findings

and conclusions; hence, model fit and quality indices play a very important role in

PLS-SEM. There are plenty of model fit and quality indices in the literature. The

present study will use the model fit and quality indices recommended by Kock

(2020) as follows: 1) Both the Average path coefficient (APC), Average R-squared
(ARS), and Average adjusted R-squared (AARS) should be statistically significant

(i.e., the p-value should be less than .05); 2) Both the Average block VIF (AVIF)

and Average full collinearity VIF (AFVIF) should be 3.3 or below to be ideal and 5

or below to be acceptable. 3) The standardized root mean squared residual (SRMR)

and standardized mean absolute residual (SMAR) should be 0.10 and below to be

acceptable.

In addition, according to Kock (2020), the Goodness of Fit (GoF) can be

described as either small, medium, or large. Small GoF if 0.1 or higher; medium if

0.25 or higher; and large if 0.36 or higher. The larger the GoF, the better the fit of

the data and model.

3.6.2.3 Analysis of Structural Model

After the assessment of the measurement model including the convergent

validity, discriminant validity, common method bias, and reliability as well as the

model fit and quality indices, the next step is the analysis of the structural model.

The structural model assesses the effect (influence or relationship) of one latent

variable on the other latent variables in the model. In this study, the latent variables

are accounting practices, accounting controls, and business performance. Many

studies (e.g., Paulino et al., 2021; Fearnley & Amora, 2020; Amora et al., 2016)

published in the scopus indexed journals that utilized PLS-SEM reported the path
coefficients and their corresponding standard errors, p values, and effect sizes. In

accordance with the conceptual framework and hypotheses of the study, the links

among the variables will be analyzed by reporting the path coefficients and their

corresponding standard error, p values and effect size. The effect of one variable on

the other variable is statistically significant if the p value is less than .05. The

extent of effect of one variable on the other variable will be described either small,

medium, or large based on the recommendation of Cohen (1988) and Kock (2014)

as follows: 0.02 = small, 0.15 = medium, 0.35 = large.

The researchers, using causal analysis, examined whether one variable

causes other variables to change or not, by testing the hypothesis utilizing the

Equation Model Structure (SEM) with the Partial Least Square (PLS) approach to

provide an emphasis on the predictive factor of the study. This method can also deal

with meditative and conclusive constructs. To meet the objectives of the study, the

results from the surveys used the WarpPLS version 7.0 application to aid the

PLS-SEM analysis of this study. Further, WarpPLS (Kock, 2020) is a powerful

PLS-based structural equation modeling software. It is very easy to use, with a

step-by-step user interface guide. WarpPLS offers a 90-day trial version which is a

full implementation of the software, not a demo version. The WarpPLS version 7.0

works for Windows (2000, XP, 7, 8, and 10) operating systems. All of such features

including the 90-day trial version are favorable on the part of the researcher;
 therefore, the present study utilized the WarpPLS version 7.0 in conducting the

PLS-SEM.

Reliability Testing

Table 3

Cronbach’s Alpha Result for Accounting Practices and Accounting Controls

Section/Subsection Cronbach Interpretatio

Alpha n

Accounting Practices 0.9322 Passed

Accounting Method 0.8073 Passed

Bad Debt Estimate 0.8763 Passed

Depreciation Method 0.8960 Passed

Net Receivable Estimation 0.8909 Passed

Business Documents 0.8256 Passed

Accounting Controls 0.9441 Passed

 Cash Management 0.7213 Passed

Fund Management 0.8347 Passed

Expenditure Management 0.8228 Passed

Accounts Payable Management 0.8122 Passed

Financial Statement 0.8132 Passed

Preparation

Non-Financial Measures 0.9001 Passed

*n=161

Presented in Table 3 is the reliability testing of the study involving 161 respondents.

The reliability testing was performed to determine the reliability of the research instrument

utilized in obtaining the relevant data. The reliability testing using cronbach’s alpha

provides that an alpha ≥ 0.9 is excellent, 0.9 ≥ alpha ≥ 0.8 is good, 0.8 ≥ alpha ≥ 0.7 is

acceptable, 0.7 ≥ alpha ≥ 0.6 is questionable, 0.6 ≥ alpha ≥ 0.5 is poor, while 0.5 ≥ alpha is

unacceptable. Based on the resulting analysis, all indicators fell within the range of

excellent, good, and acceptable, registering an alpha of greater than 70.

 Chapter 4: Presentation of Findings, Analysis, and Implications

This chapter presents the findings, analysis, and implications of the research

instrument utilized to achieve the objectives of the study. It begins with the presentation

and discussion of the descriptive statistics, followed by the presentation of the PLS-SEM

analysis, the reliability testing result for the research instrument, and finally, a discussion of

results.

4.1 Data Results

Descriptive Statistics

This section discusses the descriptive statistics of the demographics of the

participants along with their responses. 161 micro-, small-, and medium-scale enterprises

(MSMEs) qualified as part of the MSME sector participated in the study spread among the

different industries within the city. Data gathering was conducted in the following areas:

Barangay Bagong Pag-asa, Barangay Santo Cristo, along Katipunan Avenue, and Banawe

Avenue of Quezon City, Metro Manila. Tables 4, 5, and 6 present the data characteristics of

the variables through a report in the corresponding means, standard error, median, mode,

standard deviation, sample variance, kurtosis, skewness, range, minimum, maximum, sum

of responses, and count or number of observations. The results encompass over 161

responses for the indicators such listed: Accounting Method (acm), Bad Debts Estimation
(bde), Depreciation Method (dep), Net Receivable Estimation (nre), Business

Documentation (bdc), and Payment Method (pay), which pertain to Accounting Practices.

Cash Management (cas), Fund Management (fun), Expenditure Management (exp),

Accounts Payable Management (apm), and Financial Statement Preparation (fsp) pertain to

Accounting Controls. Lastly, herein also presented are Financial Measures (fin), and

Non-Financial Measures (non).

Table 4

Descriptive Statistics: Accounting Practices

acm1 acm2 bde1 bde2 bde3 dep1 dep2 dep3 dep4

Mean 3.64 3.63 3.24 3.16 2.92 3.71 3.59 3.39 3.84

Standard Error 0.08 0.08 0.08 0.09 0.10 0.09 0.09 0.09 0.09

Median 4.00 4.00 3.00 3.00 3.00 4.00 4.00 4.00 4.00

Mode 4.00 4.00 4.00 3.00 2.00 4.00 4.00 4.00 5.00

Standard Deviation 1.06 1.04 0.98 1.14 1.21 1.11 1.10 1.12 1.18

Sample Variance 1.12 1.09 0.97 1.31 1.46 1.23 1.22 1.25 1.39

Kurtosis -0.23 -0.15 -0.47 -0.84 -0.86 -0.37 -0.43 -0.65 -0.62

Skewness -0.55 -0.55 -0.33 0.05 0.20 -0.65 -0.54 -0.35 -0.71
 Range 4.00 4.00 4.00 4.00 4.00 4.00 4.00 4.00 4.00

Minimum 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00

Maximum 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00

Sum 586 584 521 508 470 597 578 545 618

Count 161 161 161 161 161 161 161 161 161

Table 4 (cont.)

Descriptive Statistics: Accounting Practices

nre1 nre2 nre3 bdc1 bdc2 bdc3 pay1 pay2 pay3

Mean 3.40 3.16 3.15 4.20 3.95 3.52 4.52 3.12 2.47

Standard Error 0.09 0.10 0.09 0.09 0.09 0.10 0.06 0.12 0.14

Median 4.00 3.00 3.00 5.00 4.00 4.00 5.00 3.00 1.00

Mode 4.00 4.00 4.00 5.00 5.00 4.00 5.00 5.00 1.00

Standard Deviation 1.20 1.30 1.15 1.11 1.14 1.29 0.74 1.54 1.74

Sample Variance 1.43 1.69 1.33 1.24 1.30 1.68 0.55 2.38 3.03

Kurtosis -0.58 -1.11 -0.82 1.44 0.01 -0.85 4.49 -1.47 -1.56

Skewness -0.48 -0.12 -0.17 -1.46 -0.96 -0.54 -1.91 -0.16 0.52
 Range 4.00 4.00 4.00 4.00 4.00 4.00 4.00 4.00 4.00

Minimum 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00

Maximum 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00

Sum 547 508 507 677 636 567 727 503 397

Count 161 161 161 161 161 161 161 161 161

Table 4 shows the descriptive statistics for accounting practices. The indicators for

accounting methods range from 1 to 5 on the likert scale (MN = 3.64 and 3.63, SD = 1.06

and 1.04). The bad debts estimation indicators also range from 1 to 5 (MN = 3.24, 3.16,

and 2.92, SD = 1.06, 1.04, and 0.98.). Depreciation method indicators recorded responses

ranging from 1 to 5 (MN = 3.71, 3.59, 3.39, and 3.84, SD = 1.11, 1.10, 1.12, and 1.18)

while net receivable estimation likewise recorded a range of 1 to 5 (MN = 3.40, 3.16, and

3.15, SD = 1.20, 1.30, and 1.15). On the other hand, the indicators of business

documentation also recorded a range of 1 to 5 (MN = 4.20, 3.95, and 3.52, SD = 1.11, 1.14,

and 1.29). Lastly, the payment method further recorded a range of 1 to 5 (MN = 4.52, 3.12,

and 2.47, SD = 0.74, 1.54, and 1.74).

The table is interpreted in various ways. Firstly, in terms of accounting method, it is

revealed that most of the participating MSMEs only sometimes employ an accrual basis of
accounting. In terms of bad debts estimation, the MSMEs are revealed to only seldom track

the historical percentages of uncollectible amounts. As to the depreciation method, the

MSMEs likewise only sometimes practice appropriate application, with the exception of

derecognizing fully depreciated assets, which records the highest score. With regards to net

receivable estimation, the MSMEs are relatively poor in terms of practicing allotting

allowances for sales returns, and uncollectible accounts. The MSMEs also have a relatively

effective application of business documentation practices, with a score of “frequently” in

terms of their preparation of official receipts, and other such forms of recording

transactions. Finally, in terms of payment method, the MSMEs report extremely frequent

use of cash and checks, but seldom utilization of credit and such similar modes of payment.

Table 5

Descriptive Statistics: Accounting Controls

cas1 cas2 cas3 cas4 fun1 fun2 fun3

Mean 4.19 4.06 3.55 3.82 3.70 3.72 3.47

Standard Error 0.10 0.07 0.08 0.08 0.08 0.07 0.08

Median 5.00 4.00 3.00 4.00 4.00 4.00 4.00

Mode 5.00 5.00 3.00 4.00 4.00 4.00 4.00

Standard Deviation 1.24 0.90 1.03 0.96 1.02 0.93 1.01

 Sample Variance 1.53 0.82 1.06 0.92 1.05 0.87 1.03

Kurtosis 1.57 -0.47 -0.85 -0.42 -0.09 -0.42 -0.54

Skewness -1.62 -0.63 -0.09 -0.53 -0.58 -0.40 -0.31

Range 4.00 3.00 4.00 4.00 4.00 4.00 4.00

Minimum 1.00 2.00 1.00 1.00 1.00 1.00 1.00

Maximum 5.00 5.00 5.00 5.00 5.00 5.00 5.00

Sum 675 653 572 615 596 599 558

Count 161 161 161 161 161 161 161

Table 5 (cont.)

Descriptive Statistics: Accounting Controls

exp1 exp2 exp3 exp4 apm1 apm2 apm3 apm4 fsp1 fsp2

Mean 4.06 3.92 3.53 3.84 3.77 4.30 3.81 3.25 3.86 3.55

Standard Error 0.08 0.07 0.08 0.07 0.07 0.07 0.07 0.09 0.08 0.09

Median 4.00 4.00 4.00 4.00 4.00 5.00 4.00 3.00 4.00 4.00
 Mode 5.00 4.00 4.00 4.00 4.00 5.00 4.00 3.00 4.00 4.00

Standard Deviation 0.99 0.86 1.08 0.93 0.95 0.87 0.94 1.11 1.04 1.15

Sample Variance 0.97 0.74 1.16 0.87 0.90 0.75 0.88 1.24 1.07 1.31

Kurtosis -0.14 0.10 -0.89 -0.54 -0.41 1.35 -0.67 -0.96 -0.45 -1.02

Skewness -0.84 -0.56 -0.20 -0.51 -0.50 -1.28 -0.27 0.10 -0.63 -0.27

Range 4.00 4.00 4.00 3.00 4.00 4.00 4.00 4.00 4.00 4.00

Minimum 1.00 1.00 1.00 2.00 1.00 1.00 1.00 1.00 1.00 1.00

Maximum 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00

Sum 654 631 569 618 607 693 614 523 621 572

Count 161 161 161 161 161 161 161 161 161 161

Table 5 presents the descriptive statistics for accounting controls. The indicators for

accounting cash management range from 1 to 5 on the likert scale, with the exception of

cas2 which ranged from 2 to 5 (MN = 4.19, 4.06, and 3.55, SD = 0.10, 0.07 and 0.08).

Fund management responses ranged from 1 to 5 (MN = 3.70, 3.72, and 3.47, SD = 1.02,

0.93, and 1.01), while the expenditure management ranged from 1 to 5, apart from exp4

which has a range of 2 to 5 (MN = 4.06, 3.92, 3.53, and 3.84, SD = 0.99, 0.86, 1.08, and

0.93). Accounts payable management also recorded a range of 1 to 5 (MN = 3.77, 4.30,
3.81, and 3.25, SD = 0.95, 0.87, 0.94, and 1.11). Lastly, the financial statement preparation

measured a range of 1 to 5 (MN = 3.86 and 3.55, SD = 1.04 and 1.15).

In other words, the MSMEs practice effective cash management practices especially

in keeping a bank account and depositing company funds therein. On the other hand, the

MSMEs only sometimes apply stringent fund management practices, particularly in not

exceeding periodic budgets. The MSMEs however, are more effective in expenditure

management practices, particularly in maintaining daily records of expenses. Similarly, in

terms of accounts payable management, MSMEs are reportedly effective in appropriately

derecognizing payables upon full payment. Lastly, MSMEs only sometimes involve

themselves in the preparation of financial statements, more so in reviewing such

documents.

Table 6

Descriptive Statistics: Business Performance

fin1 fin2 fin3 fin4 non1 non2 non3 non4 non5 non6 non7

Mean 0.91 1.07 5.12 0.55 3.34 3.10 3.07 4.00 3.89 4.07 3.86

Standard 0.07 0.07 0.45 0.02 0.09 0.09 0.09 0.06 0.08 0.07 0.09

Error
Median 0.67 0.82 3.33 0.52 3.00 3.00 3.00 4.00 4.00 4.00 4.00

Mode 1.00 1.00 4.00 0.50 3.00 3.00 3.00 4.00 4.00 4.00 5.00

Standard 0.92 0.93 5.77 0.21 1.15 1.08 1.09 0.78 0.97 0.85 1.09

Deviation

Sample 0.84 0.86 33.24 0.04 1.31 1.17 1.18 0.61 0.93 0.72 1.19

Variance

Kurtosis 7.32 4.75 10.96 -1.23 -0.73 -0.67 -0.55 0.92 -0.60 -0.56 -0.52

Skewness 2.49 1.96 2.94 0.00 -0.21 0.01 -0.12 -0.71 -0.46 -0.52 -0.65

Range 5.16 5.08 39.75 0.88 4.00 4.00 4.00 4.00 4.00 3.00 4.00

Minimum 0.04 0.06 0.25 0.03 1.00 1.00 1.00 1.00 1.00 2.00 1.00

Maximum 5.20 5.13 40.00 0.90 5.00 5.00 5.00 5.00 5.00 5.00 5.00

Sum 145.87 171.49 824.36 87.75 537.00 499.00 495.00 644.00 627.00 656.00 621.00

Count 161 161 161 161 161 161 161 161 161 161 161

Table 6 reveals the descriptive statistics for business performance. The business

performance variable has 2 indicators being financial and non-financial measures. The

financial measures which consisted of financial ratios recorded a range of 0.88 to 39.75

(MN = 0.91, 1.07, 5.12, and 0.55, SD = 0.92, 0.93, 5.77, and 0.21). The non-financial
measures on the other hand, employed a likert scale which yield a range of 1 to 5, aside

from non4 which recorded a range of 2 to 5 (MN = 3.34, 3.10, 3.07, 4, 3.89, 4.07, and 3.87,

SD = 1.15, 1.08, 1.09, 0.78, 0.97, 0.85, and 1.09)

As to the business performance the financial ratios are represented through the

information and data values stipulated in the table. The nonfinancial measures however,

offer interesting findings. The MSMEs report having experienced average nonfinancial

business performance as represented by their responses of “sometimes” pertaining to

growth in number of employees, product quality and customer satisfaction, as well as the

level of firm productivity.

4.2 Demographics

The first section of the survey questionnaire consisted of questions on the

respondent’s name along with the business name, industry they identify with and the

number of years in operation. Employing the two criteria in defining the MSMEs, the

respondents were asked to classify the business based on (1) the number of total assets, and

(2) the number of employees. For additional information, the respondents were also asked

to identify their industry classification, and number of years in operation.

Table 7

Frequency Distribution Table for MSME Classification

 Characteristics Frequency Percentage (%)

Classification

Micro-sized enterprises 136 84.47%

Small-sized enterprises 24 14.91%

Medium-sized enterprises 1 0.62%

Total 161 100%

With a total sample size of 161 respondents, the researchers summarized the

demographic profile of the respondents as shown in Table 7. Majority of the respondents

are micro-scale enterprises (84.47%) which was followed by small-scale enterprises

(14.91%), leading to the least number of respondents being medium-scale enterprises

(0.62%).

Table 8

Frequency Distribution Table for Number of Employees

Number of Employees Frequency %

1 to 9 144 89.4
 10 to 49 15 9.3

50 to 99 2 1.2

Total 161 100.0

Average 5.6

Variance 50.7

Among the 161 participants of the study, the most frequent responses for the

number of employees ranged from 1 to 9, 10 to 49, and 50 to 99, in that same order of

frequency. Majority of the respondents had 1 to 9 employees, accounting for 89.4% of the

total number of responses. This is followed by 10 to 49 at 15 occurrences or 9.3% of the

total, and lastly, by 50 to 99 at 2 observations, or 1.2% of the population. The average

number of employees is 5.6 or 6, with a large variance of 50.7 which implies that the

respondents have relatively varied responses or number of employees.

Table 9

Frequency Distribution Table for Industry Classification

Industry Frequency %

Food and Beverage 81 50.3

 Retail/Consumer Goods 26 16.1

Hardware/General Merchandise 10 6.2

Clothing 8 5.0

Service 7 4.3

Computer and Printing 5 3.1

Water Refilling 5 3.1

Automotive 4 2.5

Beauty and Wellness 4 2.5

Health and Dental Care 4 2.5

Camera and Filmography 3 1.9

Construction and Industrial Goods 2 1.2

Others/Unspecified 2 1.2

Total 161 100.0

​The respondents were also asked to identify the industry within which their

operations fall under. Majority of the respondents belonged to the Food and Beverage

industry with 81 respondents or 50.3% of the total. This is followed by Retail/Consumer

Goods at 26 respondents (16.1%) and by Hardware/General Merchandise which recorded

10 responses (6.2%). Other such industries explored by the study includes clothing, service,

computer and printing, water refilling, automotive, beauty and wellness, health and dental

care, camera and filmography, construction and industrial goods, and others.

Table 10

Frequency Distribution Table for Years in Operation

Years in Operation Frequency %

1 to 4 years 116 72.0

5 to 9 years 31 19.3

10 to 15 years 6 3.7

16 to 20 years 2 1.3

20 years and above 6 3.7

Total 161 100.0

Average 4.5

Variance 23.4

The respondents were asked about the length of years in operation. The responses

ranged from 1 to 4 years, 5 to 10 years, 10 to 20 years, and finally, 20 years and above. The
most number of responses was 1 to 4 years at 116 frequency or 72% of the total number of

answers. This is followed by 5 to 10 years, at 35 respondents (21.7%), then by more than

20 years or 20 years and above at 6 or 3.7% of the total, and lastly by 11 to 20 years at 4

responses (2.5%). The average number of years in operations is 4.5 years with a large

variance of 23.4 which implies that the respondents have relatively varied responses or

years in operation.

Table 11

SEM Goodness-of-Fit Measures

RMSE RMSEA CFI SRM

A p-value R

0.084 0.000 0.78 0.079

Table 11 shows various goodness-of-fit measures of the PLS-SEM. The RMSEA is

0.084. Based on the RMSEA = 0.084 < 0.10, cutoff of close fit, it can be claimed that the

model had an acceptable fit. However, this is contradictory to the result of the RMSEA

p-value of 0.769. Since the p-value = 0.000 < alpha = 0.05, the null hypothesis should be

rejected. There is therefore sufficient evidence to conclude that the model does not have

good/close fit.
 The comparative fit index (CFI) is 0.789 while the standardized root mean square

residual (SRMR) is 0.079. Based on the cutoff of good fit criteria of CFI = 0.789 is not

greater than 0.95, it can be inferred that there is a lack of goodness of fit. However, based

on the SRMR = 0.079 is less than 0.08, an alternative way to measure the cutoff of good fit,

it can be concluded that there is good fit.

Given the contradicting results between RMSEA, RMSEA p-value, CFI, and

SRMR measures of goodness of fit (particularly within RMSEA and RMSEA p-value), the

model can be acceptable as good fit, however further steps need to be taken to improve it.

Table 12

Factor Loadings

# Latent Exogenous Coefficient ci.lowe ci.uppe SE Z p-val

Variable Variable / r r .

Loading

1 accounting acm1 0.773 0.666 0.880 0.05 14.12 0.000

5 1
2 accounting acm2 0.845 0.777 0.914 0.03 24.19 0.000

5 3

3 baddebt bde1 0.793 0.720 0.866 0.03 21.34 0.000

7 7

4 baddebt bde2 0.878 0.819 0.937 0.03 29.07 0.000

0 7

5 baddebt bde3 0.862 0.799 0.924 0.03 27.10 0.000

2 0

6 depreciation dep1 0.863 0.804 0.923 0.03 28.48 0.000

0 1

7 depreciation dep2 0.882 0.839 0.924 0.02 40.88 0.000

2 7

8 depreciation dep3 0.902 0.865 0.938 0.01 48.25 0.000

9 9

9 depreciation dep4 0.674 0.541 0.807 0.06 9.938 0.000

1 receivable nre1 0.886 0.832 0.940 0.02 32.31 0.000

0 7 6
1 receivable nre2 0.896 0.843 0.948 0.02 33.64 0.000

1 7 8

1 receivable nre3 0.793 0.720 0.866 0.03 21.39 0.000

2 7 8

1 busdocument bdc1 0.738 0.623 0.852 0.05 12.61 0.000

3 8 9

1 busdocument bdc2 0.812 0.736 0.888 0.03 20.88 0.000

4 9 7

1 busdocument bdc3 0.789 0.703 0.875 0.04 17.92 0.000

5 4 6

1 payment pay1 0.443 0.272 0.614 0.08 5.071 0.000

6 7

1 payment pay2 0.746 0.658 0.834 0.04 16.66 0.000

7 5 2

1 payment pay3 0.522 0.405 0.639 0.06 8.749 0.000

8 0

1 cash cas1 0.678 0.575 0.781 0.05 12.90 0.000

9 3 6
2 cash cas2 0.558 0.431 0.685 0.06 8.600 0.000

0 5

2 cash cas3 0.690 0.577 0.804 0.05 11.901 0.000

1 8

2 fund fun1 0.823 0.767 0.879 0.02 28.79 0.000

2 9 4

2 fund fun2 0.738 0.659 0.817 0.04 18.28 0.000

3 0 3

2 fund fun3 0.805 0.749 0.862 0.02 27.97 0.000

4 9 6

2 expenditure exp1 0.741 0.649 0.833 0.04 15.77 0.000

5 7 8

2 expenditure exp2 0.787 0.719 0.856 0.03 22.45 0.000

6 5 3

2 expenditure exp3 0.695 0.617 0.774 0.04 17.37 0.000

7 0 0

2 expenditure exp4 0.683 0.572 0.795 0.05 12.03 0.000

8 7 1
2 payable apm1 0.781 0.715 0.846 0.03 23.36 0.000

9 3 7

3 payable apm2 0.613 0.503 0.724 0.05 10.87 0.000

0 6 0

3 payable apm3 0.752 0.685 0.818 0.03 22.17 0.000

1 4 4

3 payable apm4 0.703 0.623 0.783 0.04 17.25 0.000

2 1 7

3 statement fsp1 0.859 0.809 0.908 0.02 34.05 0.000

3 5 6

3 statement fsp2 0.771 0.696 0.845 0.03 20.25 0.000

4 8 6

3 financial fin1 0.990 0.872 1.109 0.06 16.37 0.000

5 0 2

3 financial fin2 0.818 0.691 0.945 0.06 12.58 0.000

6 5 0

3 financial fin3 0.150 -0.030 0.330 0.09 1.634 0.102

7 2
 3 financial fin4 0.300 0.192 0.408 0.05 5.430 0.000

8 5

3 nonfinancial non1 0.741 0.661 0.821 0.04 18.20 0.000

9 1 9

4 nonfinancial non2 0.760 0.692 0.828 0.03 21.95 0.000

0 5 5

4 nonfinancial non3 0.787 0.723 0.850 0.03 24.14 0.000

1 3 8

4 nonfinancial non4 0.578 0.448 0.708 0.06 8.721 0.000

2 6

4 nonfinancial non5 0.700 0.596 0.805 0.05 13.110 0.000

3 3

4 nonfinancial non6 0.809 0.722 0.897 0.04 18.18 0.000

4 5 4

4 nonfinancial non7 0.878 0.838 0.919 0.02 42.48 0.000

5 1 8

Table 12 shows the factor loadings of the exogenous variables with the endogenous

variables. The factor loading is a measure of correlation coefficient between exogenous

variables and endogenous variables. The factor loadings range from 0.613 up to 0.990

(excluding pay1, pay3, cas2, fin3, fin4, and non4 for having factor loadings less than 0.60).

Thus, all endogenous variables have an adequate relationship with the exogenous variables

since the factor loadings are greater than the cutoff value of 0.60.

Table 13

PLS-SEM Variance Explained (VAREX)

# Item R2

1 acm1 0.597

2 acm2 0.714

3 bde1 0.629

4 bde2 0.771

5 bde3 0.743

6 dep1 0.746

7 dep2 0.777

8 dep3 0.813

9 dep4 0.454

10 nre1 0.785
11 nre2 0.802

12 nre3 0.629

13 bdc1 0.544

14 bdc2 0.660

15 bdc3 0.622

16 pay1 0.196

17 pay2 0.557

18 pay3 0.272

19 cas1 0.460

20 cas2 0.311

21 cas3 0.476

22 fun1 0.677

23 fun2 0.545

24 fun3 0.649

25 exp1 0.549

26 exp2 0.620

27 exp3 0.484

28 exp4 0.467

29 apm1 0.610

30 apm2 0.376
31 apm3 0.565

32 apm4 0.494

33 fsp1 0.738

34 fsp2 0.594

35 fin1 0.980

36 fin2 0.669

37 fin3 0.023

38 fin4 0.090

39 non1 0.549

40 non2 0.577

41 non3 0.619

42 non4 0.334

43 non5 0.491

44 non6 0.655

45 non7 0.772

46 accounting 0.799

47 statement 0.899

48 financial 0.253

49 nonfinancial 0.862
 Table 13 shows the R between the exogenous variables and endogenous variables.
2

The R is a measure of endogenous variable variability explained by the exogenous

2

variable(s). While the R across endogenous variables ranged from 0.023 (or 2.3%) up to
2

0.980 (or 98.0%) as indicated on items numbered 1 to 49, the overall R of the model for
2

the dependent variable financial measures is at 0.253 (25.3%), which is below the cutoff

value of 0.60 (60%) for good variability explained. For nonfinancial measures, the overall

R is at 0.862 (86.2%), which is above the cutoff value implying adequate variables and
2

paths were used to unearth insights on nonfinancial measures.

The results of the study show a significant variability within the dependent variable

of non-financial business performance with 86.2% being explained by the other variables

used in the study to measure it. This is well beyond the 60% threshold that is commonly

adopted as the acceptable level of coefficient of determination by other researchers. Thus,

the accounting practices and accounting controls as measured by the indicators used in this

study proved to be effective predictors of the resulting non-financial performance of

MSMEs within the region. In contrast, the overall variance explained for the financial

performance of the respondents was only 25.3%. This does not fall under the acceptable

level of variance explained. Though the return on assets and the return on equity registered

98% and 66.9% VAREX respectively, the current ratio and the return on sales only

recorded 2.3% and 9% VAREX respectively. Thus, it is imperative to explore other factors

in defining such variables. Based on the results, the indicators used for measuring the
accounting practices and accounting controls in this study are therefore not significant in

predicting the effect towards financial performance of the respondent firms.

Table 14

PLS-SEM Regression Coefficients of Indicators

Latent Endogenous Coefficient/Regression ci.uppe

# ci.lower SE Z p.value
Variable Variable Coef r

1 accounting baddebt 0.212 0.022 0.401 0.09 2.191 0.028

2 accounting depreciation 0.195 -0.128 0.517 0.16 1.183 0.237

3 accounting receivable 0.105 -0.105 0.315 0.10 0.977 0.328

4 accounting busdocument 0.557 0.270 0.844 0.14 3.810 0.000

5 accounting payment -0.044 -0.377 0.289 0.17 -0.25 0.796

0 9

6 statement cash 0.146 -0.576 0.868 0.36 0.396 0.692

7 statement fund 1.092 0.322 1.861 0.39 2.780 0.005

8 statement expenditure 1.140 0.219 2.060 0.47 2.427 0.015

9 statement payable -1.391 -2.832 0.050 0.73 -1.89 0.058

5 3
 1 financial accounting -0.708 -1.025 -0.390 0.16 -4.36 0.000

0 2 9

1 financial statement 0.328 0.017 0.639 0.15 2.068 0.039

1 9

1 nonfinancial accounting 0.285 0.108 0.461 0.09 3.158 0.002

2 0

1 nonfinancial statement 0.692 0.533 0.852 0.08 8.489 0.000

3 2

Table 15

Statistical Significance of Latent and Endogenous Variables

Latent Variable Endogenous Variable p.value Statistical Significance

accounting baddebt 0.028 significant

accounting depreciation 0.237 insignificant

accounting receivable 0.328 insignificant

accounting busdocument 0.000 significant

accounting payment 0.796 insignificant

statement cash 0.692 insignificant

statement fund 0.005 significant

 statement expenditure 0.015 significant

statement payable 0.058 insignificant

financial accounting 0.000 significant

financial statement 0.039 significant

nonfinancial accounting 0.002 significant

nonfinancial statement 0.000 significant

Table 14 shows the coefficient/path coefficients for each latent and endogenous

variable, as well as its corresponding p-values, which determine whether such has a

statistical significance or not, at an alpha level of 0.05. Table 15 shows the regression/path

coefficients between the variables. This section presents which endogenous variable has

either a significant or insignificant effect on the latent variables. The following paragraphs

show an extensive discussion of the results of the aforementioned table:

1. A path/regression coefficient between baddebt and accounting of 0.212 implies that

a unit increase in the standard deviation of baddebt would yield to an increase on

accounting equivalent to 21.2% of its standard deviation, ceteris paribus. This

 coefficient is significant (under the null hypothesis that the coefficient = 0) based on

the p-value = 0.028 < alpha = 0.05;

2. A path/regression coefficient between depreciation and accounting of 0.195 implies

that a unit increase in the standard deviation of depreciation would yield to an

increase on accounting equivalent to 19.5% of its standard deviation, ceteris

paribus. This coefficient is insignificant based on the p-value = 0.237 > alpha =

0.05;

3. A path/regression coefficient between accounting and receivable of 0.105 implies

that a unit increase in the standard deviation of receivable would yield to an

increase on accounting equivalent to 10.5% of its standard deviation, ceteris

paribus. This coefficient is insignificant based on the p-value = 0.328 < alpha =

0.05;

4. A path/regression coefficient between busdocument and accounting of 0.557

implies that a unit increase in the standard deviation of busdocument would yield to

an increase on accounting equivalent to 55.7% of its standard deviation, ceteris

paribus. This coefficient is significant (under the null hypothesis that the coefficient

= 0) based on the p-value = 0.000 < alpha = 0.05;

5. A path/regression coefficient between accounting and payment of -0.044 implies

that a unit increase in the standard deviation of payment would yield a decrease on

accounting equivalent to -4.4% of its standard deviation, ceteris paribus. This

coefficient is not significant based on the p-value = 0.796 < alpha = 0.05;
6. A path/regression coefficient between statement and cash of 0.146 implies that a

unit increase in the standard deviation of cash would yield an increase on statement

equivalent to 14.6% of its standard deviation, ceteris paribus. This coefficient is

insignificant based on the p-value = 0.692 < alpha = 0.05;

7. A path/regression coefficient between statement and fund of 1.092 implies that a

unit increase in the standard deviation of statement would yield an increase on fund

equivalent to 109.2% of its standard deviation, ceteris paribus. This coefficient is

significant (under the null hypothesis that the coefficient = 0) based on the p-value

= 0.005 < alpha = 0.05;

8. A path/regression coefficient between statement and expenditure of 1.140 implies

that a unit increase in the standard deviation of statement would yield to an increase

on expenditure equivalent to 114% of its standard deviation, ceteris paribus. This

coefficient is significant (under the null hypothesis that the coefficient = 0) based on

the p-value = 0.015 < alpha = 0.05;

9. A path/regression coefficient between statement and payable of -1.391 implies that

a unit increase in the standard deviation of payable would yield a decrease on

statement equivalent to -139.1% of its standard deviation, ceteris paribus. This

coefficient is insignificant based on the p-value = 0.058 < alpha = 0.05;

10. A path/regression coefficient between financial and accounting of -0.708 implies

that a unit decrease in the standard deviation of financial would yield to a decrease

on accounting equivalent to 70.8% of its standard deviation, ceteris paribus. This

 coefficient is significant (under the null hypothesis that the coefficient = 0) based on

the p-value = 0.0000 < alpha = 0.05;

11. A path/regression coefficient between nonfinancial and accounting of 0.285 implies

that a unit increase in the standard deviation of nonfinancial would yield to an

increase on accounting equivalent to 32.8% of its standard deviation, ceteris

paribus. This coefficient is significant (under the null hypothesis that the coefficient

= 0) based on the p-value = 0.002 < alpha = 0.05;

12. A path/regression coefficient between financial and statement of 0.328 implies that

a unit increase in the standard deviation of financial would yield to an increase on

statement equivalent to 32.8% of its standard deviation, ceteris paribus. This

coefficient is significant (under the null hypothesis that the coefficient = 0) based on

the p-value = 0.039 < alpha = 0.05; and

13. A path/regression coefficient between nonfinancial and statement of 0.692 implies

that a unit increase in the standard deviation of nonfinancial would yield to an

increase on statement equivalent to 69.2% of its standard deviation, ceteris paribus.

This coefficient is significant (under the null hypothesis that the coefficient = 0)

based on the p-value = 0.000 < alpha = 0.05.

Figure 12

Partial Least Squares-Structural Equation Model

 Presented in Figure 12 is the Partial Least Squares-Structural Equation Model

(PLS-SEM) showing the factor loadings, variances explained, and regression coefficients in

black-, red-, and green-colored texts, respectively, for the independent and dependent

variables of the study. This model represents the data results from Tables 12, 13, and 14,

which was discussed in the previous section.

4.3 Discussion of Results

 With the data obtained from the respondents, the following analysis and

interpretations were made about the results and findings of the study, aligning the

hypotheses discussed in Chapter 2 of the study:

Ho1.1: The accounting practices of a firm have no significant effect on the

firm’s financial measures of business performance.

Ha1.1: The accounting practices of a firm have a significant effect on the

firm’s financial measures of business performance.

A path/regression coefficient between financial and accounting of -0.708 implies

that a unit decrease in the standard deviation of financial would yield to a decrease on

accounting equivalent to 70.8% of its standard deviation, ceteris paribus. This coefficient is

significant (under the null hypothesis that the coefficient = 0) based on the p-value =

0.0000 < alpha = 0.05, thus, rejecting the null hypothesis.

The results of the analysis are supported by the Decision-Usefulness Theory by

George Staubus (2000) that accounting can influence and aid owners and stakeholder alike

to develop rational economic decisions, resulting in moving up the value chain. The

previous study of Ofoegbu, Okolo, and Nsoke (2021) among MSMEs in Nigeria found that

the presence of accounting practices positively influences the growth of companies.

Furthermore, the optimal use of all available accounting information to make sound and

informed decisions to improve on certain factors of financial measures of business

performance is pivotal to the business (Soyinka, Fagbayimu, Adegoroye, & Ogunmola,

2017; El-Maud et. al, 2015; Sutriani, Animah, & Jumaidi, 2019). Balagobei (2020) also

stated that financial information extracted from accounting practices supports the

management in making effective financial decisions. With this, the accounting practices of

a firm have a significant effect on the firm’s financial measures of business performance.

This denotes that financial information built from good accounting practices help

business owners and managers to make effective decisions that are deemed significant to

the survival and continuity of its business. Study findings have shown that a good portion

of MSMEs do practice maintaining accounting records but only to an extent. As per the

respondents, they usually do not cater to sales made on credit given the size of their

operations which elucidates the low frequency of maintaining records concerning net

receivables estimation.

To enhance business profitability and continuity, accounting practices must be

perceived as a significant tool that should be utilized by the company to keep track of their

performance. Since these practices aim to assist owners and managers in deciding to

expand its capital and operations, it is imperative that these are well-established within the

organization in order to make sound business decisions and raise capital from creditors and

investors to support its plans for expansion.

Ho2.1: The accounting practices of a firm have no significant effect on the

firm’s non-financial measures of business performance.

 Ha2.1: The accounting practices of a firm have a significant effect on the

firm’s non-financial measures of business performance.

A path/regression coefficient between nonfinancial and accounting of 0.285 implies

that a unit increase in the standard deviation of nonfinancial would yield to an increase on

accounting equivalent to 28.5% of its standard deviation, ceteris paribus. This coefficient is

significant (under the null hypothesis that the coefficient = 0) based on the p-value = 0.002

< alpha = 0.05, thus, rejecting the null hypothesis.

The Resource-based Theory by Birger Wernerfelt (1984) confirms the results of the

study as it argues that in order to acquire sustained competitive advantage, the firm must

make use of its accounting practices to improve on the level of the firm’s productivity,

which is an inside-out process of strategy formulation (Conner & Pralahad, 1996; Lukumay

& Wako, 2018). This is consistent with the study of Ofoegbu, Okolo, Nsoke (2021) where

they found that accounting practices positively influence employee growth, customer

satisfaction, and level of firm productivity. Study findings of Mail et. al (2020) also

supports the results noting the important role of management accounting practices to

customer satisfaction. Zelie (2020) also confirms the results of the study as it expounds on

the idea that the main determinants and factors that influence the implementation of

accounting practices include the growth of employees. With this, the accounting practices

of a firm have a significant effect on the firm’s non-financial measures of business

performance.
 The results imply that the larger the firm in non-financial measures, the more

accounting practices should be well assessed and implemented as supported by the study of

Zelie (2020). When a firm grows bigger, the scope of responsibility of the management

also grows, hence, accounting controls shall be adjusted accordingly to match the current

situation that can result in a more effective and efficient management. Furthermore, these

practices gravitate towards helping owners and managers to raise capital and expand its

operations, and supports the growth in terms of employees, firm productivity, and customer

satisfaction, as well as the continuity of MSMEs to stay afloat in the competitive

environment they are currently in.

Ho3.1: The accounting controls of a firm have no significant effect on the

firm’s financial measures of business performance.

Ha3.1: The accounting controls of a firm have a significant effect on the

firm’s financial measures of business performance.

A path/regression coefficient between financial and statement of 0.328 implies that

a unit increase in the standard deviation of financial would yield to an increase on

statement equivalent to 32.8% of its standard deviation, ceteris paribus. This coefficient is

significant (under the null hypothesis that the coefficient = 0) based on the p-value = 0.039

< alpha = 0.05, thus, rejecting the null hypothesis.

 The result is coherent with the studies of Ibarra & Velasco (2015), Maseko &

Mayani (2011), Zotovroie (2017), Santos (2019), and Lingga (2013) which state that the

firm’s financial measures are dependent on a company’s accounting controls. This is

evident as to how important recording of complete and relevant financial information paves

way in producing financial reports which are vital in making sound business estimates and

economic decisions. As further stated by prior studies, weak accounting practices and

controls may impact the core outputs of a company such as the financial statements, which

is significant to accounting presentation and disclosure (Sadeghi et.al, 2015). With this, the

accounting controls of a firm have a significant effect on the firm’s financial measures of

business performance.

This implies that accounting controls produce reliable financial reports by

establishing that the recording of complete and relevant financial information allows

companies to rely on these reports to gain insights and track their financial performance.

Furthermore, since accounting controls determine the harmonization of accounting

presentation and disclosure, owners/managers can effectively strategize their accounting

controls to improve on it that would lead to a more cost-efficient management decision.

Lastly, strong and effective accounting controls should be implemented to ensure that these

positively affect the core outputs of accounting information – financial statements, where

MSME owners and managers base their decisions on.

 Ho4.1: The accounting controls of a firm have no significant effect on the

firm’s non-financial measures of business performance.

Ha4.1: The accounting controls of a firm have a significant effect on the

firm’s non-financial measures of business performance.

A path/regression coefficient between nonfinancial and statement of 0.692 implies

that a unit increase in the standard deviation of nonfinancial would yield to an increase on

statement equivalent to 69.2% of its standard deviation, ceteris paribus. This coefficient is

significant (under the null hypothesis that the coefficient = 0) based on the p-value = 0.000

< alpha = 0.05, thus, rejecting the null hypothesis.

In relation to the study of Simons (1987), accounting controls should be designed

to suit a specific business strategy in relation to accounting systems, budgeting systems,

and responsibility reporting systems, to improve on the firm’s level of productivity. This

implies that the accounting controls of MSMEs should be aligned with the business

strategy to ensure employee growth, customer satisfaction, and an even more productive

working environment in the organization in order to grow and stay profitable and

competitive in the ever-changing market.

 Chapter 5: Conclusions and Recommendations

5.1 Conclusions

This paper conducted the study among Micro-, Small-, and Medium-Scale

Enterprises (MSMEs) in Quezon City, Philippines. More specifically, the respondents of

the research instrument used in this study were the owners, managers, or any such persons

knowledgeable in the accounting practices and controls of the firm, and oversees, or is

responsible for the preparation of the firm’s financial statements. The study utilized the

partial least squares equation model in examining the relationship between the independent

and dependent variables. The study adopted measurements from previous literature in

assessing the variables of the study. Mainly, this paper investigated the effect of accounting

practices and accounting controls on a firm’s business performance. Such variables are

measured through a combination of different indicators. The accounting practices were

measured through accounting method, bad debts estimation, depreciation method, net

receivable estimation, business documentation, and payment method. The accounting

controls were measured through cash management, fund management, expenditure

management, accounts payable management, and financial statement preparation. Finally,

the business performance was determined through financial (current ratio, return on assets,

return on equity, and return on sales) and non-financial measures (employee growth,

product quality/customer satisfaction, and level of firm productivity) .

 The partial least squares equation model (PLS-SEM) used in investigating the

variables which revealed that the accounting practices of a firm have a significant effect on

its financial performance. Similarly, the accounting practices of a firm is also deemed to

have a significant effect on its non-financial business performance. Additionally, the study

also revealed that the accounting controls of a firm have a significant effect on its financial

performance. Lastly, it was discovered that the accounting controls of a firm also have a

significant effect on its non-financial business performance. These findings are supported

by related literature and theoretical framework which the study was built and

conceptualized upon, affirming the findings similarly found within. These are further

discussed hereon:

5.1.1 Accounting Practices on Financial Measures of Business Performance

The findings of the study shows that the accounting practices of a firm have

a significant effect on its financial performance. This means that the accounting

practices measured by the indicators of accounting method, bad debt estimate,

depreciation method, net receivable estimation, and business documentation affect

the financial performance of respondent firms as measured through return on asset,

return on equity, current ratio, and return on sales. As discussed in the earlier

sections, the failure of MSMEs to sustain business operations can be attributed to

firms’ poor financial management operations. The findings of this study signifies
that continued inadequate proper recording would lead to weaker financial

performance. Accounting information built on strong accounting practices is

fundamental to business survival. As management decision-making relies heavily

on accurate information, poor accounting practices would lead to incorrect financial

records, which in turn may lead to inappropriate managerial decisions that can

cause severe implications on the financial performance. It can be concluded that a

good portion of the MSME in Quezon City do make efforts in keeping and

maintaining financial records but only to an extent, as the respondent firms noted

poor practices especially pertaining to bad debts and net receivable estimation.

Hence, by establishing accounting practices, it will lead to pushing an advocacy

fostering the stability of MSMEs in the country.

5.1.2 Accounting Practices on Non-Financial Measures of Business Performance

The findings of the study showed that the accounting practices have a

significant effect on a firm’s non-financial measures of business performance. This

implies that the accounting practices as indicated by accounting method, bad debt

estimate, depreciation method, net receivable estimation, and business

documentation affect the non-financial measures of business performance as

indicated by the employee growth, product quality/customer satisfaction, and level

of firm productivity. Key decision-makers can align their business strategies by

making use of accounting information for better management of firm performance

in terms of employee productivity and customer satisfaction. Establishing

accounting practices within the organization will not only help assist owners and

managers in raising capital and expanding operations in terms of increasing the

number of employees and reaching greater customer satisfaction, but it will also

boost firm productivity through fostering employee accountability. Therefore,

usefulness of information founded from good accounting practices provides

important performance insights that extends to internal, non-financial operations.

5.1.3 Accounting Controls on Financial Measures of Business Performance

The results of the study indicated that the accounting controls of a firm have

a significant effect on its financial performance. This means that the accounting

controls as measured by the indicators of cash management, fund management,

expenditure management, accounts payable management, and financial statement

preparation, affect the financial performance of respondent firms as measured

through return on asset, return on equity, current ratio, and return on sales. The

enforcement of accounting controls is not only pivotal to the prevention of loss of

resources, but also the achievement of the organization’s profitability targets. Better

accounting presentation and disclosure may also be achieved with effective

accounting controls, resulting in reliable financial information encapsulated in a

financial report, where MSME owners and managers base their decisions on. Thus,

by improving the accounting controls, firms can expect an improvement in the

financial measure of their business performance. Likewise, weaker accounting

controls would lead to poorer financial business performance.

5.1.4 Accounting Controls on Non-Financial Measures of Business Performance

The results of the study reveal that the accounting controls of a firm have a

significant effect on its non-financial business performance. This means that the

accounting controls as measured by the indicators of cash management, fund

management, expenditure management, accounts payable management, and

financial statement preparation, affect the non-financial business performance of

respondent firms which was measured through a combination of growth in number

of employees, product quality/customer satisfaction, and level of firm productivity.

The two variables have a positive relationship, thus, an increase in accounting

controls are therefore expected to result in an increase in the non-financial

performance of firms and vice versa. The indicators of accounting controls pertain

mostly towards internal security measures in place as to the management of assets,

liabilities, and financial records. The findings of the study therefore perpetuate the

importance of record-keeping as a significant factor that affects the non-financial

 performance of MSMEs, in such a way that it allows firms to pursue more

aggressive employment practices and more ambitious productivity goals, among

others.

Many have perceived accounting practices and controls as an insignificant element

in operating a business, wherein owners and managers hire non-professional accountants

for the sake of complying with the government requirements. In this study, the results

prove that accounting practices and controls are a prerequisite for establishing a business

because they all have a significant effect towards business performance, hence,

non-compliance to make better accounting practices and control will result in a decline in

business performance. The result of this study is in support of the recommendation of the

study of Amoako (2013) wherein they stated that national authorities should initiate

creating national guidelines and projects that would train entrepreneurs and the members of

their management to maintain high and generally accepted accounting practices.

In a nutshell, while there are some significant regression coefficients, the resulting

variances explained by the variables are relatively low, which explains how much

variability in the dependent variables is explained by the independent variables. In this

study, factor loadings and regression coefficients may be relatively good but can still be

improved on in future studies, to further substantiate the discussion of the effect of

accounting practices and accounting controls on the firm’s financial and non-financial

business performance.

5.2 Recommendations

This section presents the researchers’ recommendations to different groups, namely

MSME owners and managers, investors, and the academe and future researchers, based on

the significance of the study presented in Chapter 1.

5.2.1 MSME Owners and Managers

The exponential growth and rapid changes in the financial sector highlights

the need for MSME Owners and Managers to make urgent efforts in understanding

financial information. The findings have indicated that weak accounting practices

and accounting controls in maintaining financial information would hurt the firm’s

productivity. The latter is a product of business owners and managers’

decision-making which should be supported by financial data. With this, they

should employ appropriate accounting practices and accounting controls as such are

significant factors that affect both financial and non-financial business performance

of firms.

Based on the respondents, the accounting practices and accounting controls

of MSMEs in the region can still be improved by being more stringent and

consistent with their application. Thus, in pursuit of better business performance,

MSME owners and managers should improve their implementation of, and

compliance with, accounting practices and controls. Particularly, the bad debts

estimation is the lowest control being practiced and is therefore a potential point for

improvement.

The findings of this study also applies to new business owners wherein they

can use it as a leverage to create a good start that would differentiate them from

their competitors. In particular, new companies would have the opportunity to

advance their accounting practices and controls accurately for their position.

Likewise, this will also let business owners and managers track their growth and

improvement - which is vital for establishing a business.

5.2.2 Investors

Investors should take into consideration the accounting factors of a company

when making investment decisions. As implied by the findings of this study,

investors are able to examine a company’s financial performance and non-financial

performance if it is in good condition, either currently or in the long run, through

the indicators of accounting practices and controls

This study recommends new and existing investors to re-allocate their focus

on investing on good accounting practices and controls as it is found in the study

that accounting practices and controls has a significant effect on a firm’s business

performance as it presents a direct effect on financial and non performance. Hence,

allocating a budget on hiring a competent accountant to handle the accounting

department, while strategizing good accounting practices and controls accurately

for the firm, can lead to a firm’s success.

5.2.3 Academe and Future Researchers

The academic community can utilize the findings within this study to gain a

better understanding of the relationship that exists between the variables

investigated in this paper. Future researchers can also build upon the study through

various ways. The study recorded a low R of 25.3% for the dependent variable of
2

financial performance. This means that only 25.3% of the variability was explained,

which is well below the minimum threshold of 60%. Future researchers can

therefore seek out and utilize additional scales or variables to capture the remaining

unexplained 74.7% variability of financial performance. Furthermore, future

researchers may expand on the study by improving or modifying the research

instrument used herein to address the insignificant loadings of certain indicators,

particularly pay1, pay3, cas2, fin3, fin4, and non4 coefficients.

Obtaining a more equally distributed business classification of respondents

may also help to improve the significance of the results by serving to better

represent the MSME sector. Adopting a smaller, more focused scale of research

may also provide future researchers with interesting insights and more specific

results pertaining to the different classifications of businesses. Similarly, focusing

on specific industries may offer valuable insights especially pertaining to different

industry-specific practices and how the variables of the study interact with, and

affect each other differently between each industry.

Lastly, the researchers recommend increasing the sample size to better

capture the respondents’ measurement of their accounting practices, accounting

controls, and business performance that best represents the current status of the

accounting practices and accounting controls of businesses in Quezon City. Future

researchers may also opt to pursue a study wherein its samples are only

homogeneous in nature – focusing on one (1) classification (micro-, small-, or

medium-scale businesses), rather than MSMEs as a whole – to better understand

and conclude the phenomenon at hand.

 References

2021 MSME Statistics. (n.d.) Department of Trade and Industry.

https://www.dti.gov.ph/resources/msme-statistics/

Al-Dmour, A.H., Abbod, M. and Al-Balqa, N.S. (2018) 'The Impact of the financial

reporting quality On Non-Financial Business Performance and the Role of

Organizations Demographic' Attributes (Type, Size and Experience)', Academy of

Accounting and Financial Studies Journal, 22 (1), pp. 1 - 16.

Agbemaya, E., Ahiase, G., Sedzro, E., Adade, T. C., Bediako, A.K., Nyarko, I.K. & Kudo,

M. B. (2016). Assessing the effects of sound financial statement preparation on the

growth of small and medium-scale enterprises. The International Journal of

Business & Management, 4(3), 104-125.

Alebachew, T., Alem, K., & Zelie, E. (2020). Determinants of Accounting Practice in

Micro and Small Enterprises: Evidence from Ethiopia. Journal of Economics,

Business, & Accountancy Ventura Vol. 23, No. 2, August – November 2020, pages

293 – 303

Amoako, G. (2013, November). Accounting practices of SMEs: A case study of Kumasi

metropolis in Ghana. International Journal of Business and Management, 8(24).

Amora, J., Ochoco, M., & Anicete, R. (2016). Student engagement and college experience

as the mediators of the relationship between institutional support and academic

performance. Digital Journal of Lasallian Research, 12, 15-30.

Arifeen, Najam and Hussain, Mudassir and Kazmi, Shazia and Kazmi, Shazia and Mubeen,

Muhammad and Mughal, Sumra Latif and Akbar, Waqar and Akbar, Waqar (2013).

“Measuring Business Performance: Comparison of Financial, Non Financial and

Qualitative Indicators”. European Journal of Business and Management 6 (4),

38-45, 2014, Available at SSRN: https://ssrn.com/abstract=2373145 or

http://dx.doi.org/10.2139/ssrn.2373145

Balagobei, S. (2020, March). Accounting Practices and Organizational Performance:

Evidence from Small and Medium Scale Enterprises in Sri Lanka. Indian Journal of

Finance and Banking, 4(I).

Barney, J. B. (1991). Firm resources and sustained competitive advantage. Journal of

Management, 17, 99–120.

Blackburn, R.A., Hart, M. and Wainwright, T. (2013), "Small business performance:

business, strategy and owner-manager characteristics", Journal of Small Business

and Enterprise Development, Vol. 20 No. 1, pp. 8-27.

https://doi.org/10.1108/14626001311298394

Blanchet, J., Jonas, G. J. (2000). “Assessing financial reporting quality”. Accounting

Horizons, 14 (3): 353-363.

Chi, T. (1994). Trading in strategic resources: Necessary conditions, transaction cost

problems, and choice of exchange structure. Strategic Management Journal, 15(4),

271–290.
Dyt, R., Barrett, R., & Halabi, A. (2010). Understanding financial information used to

assess small firm performance: An Australian qualitative study. Qualitative

Research in Accounting & Management. 7. 163-179.

10.1108/11766091011050840.

Fearnley, M. R., & Amora, J. T. (2020). Learning Management System Adoption in Higher

Education Using the Extended Technology Acceptance Model. IAFOR Journal of

Education, 8(2), 89-106.

Franco-Santos, M., Kennerley, M., Micheli, P., Martinez, V., Mason, S., Marr, B., Gray, D.

and Neely, A. (2007), "Towards a definition of a business performance

measurement system", International Journal of Operations & Production

Management, Vol. 27 No. 8, pp. 784-801.

https://doi.org/10.1108/01443570710763778

Gajevszky, A. (2015). Assessing Financial Reporting Quality: Evidence from Romania.

Audit Financiar, (1583- 5812;).

Ghani, E.K., Hadiyanto, A., Puspitasari, E. (2018), "The effect of accounting methods on

financial reporting quality", International Journal of Law and Management, Vol. 60

No. 6, pp. 1401-1411. https://doi.org/10.1108/IJLMA-03-2017-0022

Jonas, G. J. and Blanchet, J. (2000). “Assessing financial reporting quality”. Accounting

Horizons, 14 (3): 353-363.

Karakaş, A., & Yıldız S. (2012). “Defining Methods and Criteria for Measuring Business

Performance: A Comparative Research Between the Literature in Turkey and

 Foreign”. Procedia - Social and Behavioral Sciences, Volume 58, 2012, Pages

1091-1102, ISSN 1877-0428, https://doi.org/10.1016/j.sbspro.2012.09.1090.

Kock, N., & Hadaya, P. (2018). Minimum sample size estimation in PLS-SEM: The inverse

square root and gamma-exponential methods. Information Systems Journal, 28(1),

227-261

Lagua, B. (2021, January 4). Bounce Back, MSMEs! Business World.

https://www.bworldonline.com/editors-picks/2021/01/04/336974/bounce-back-msm

es/

Lukumay, B., & Wako, W. (2018, November). Impact of Accounting Practices on Financial

Performance of SMEs in Ilala district of Tanzania. International Academic Journal

of Human Resource and Business Administration, 1(4), 50-51.

Mackinnon, D. (2015). Mediating Variable. In International Encyclopedia of the Social &

Behavioral Sciences: Second Edition, 64-69. Elsevier Inc..

https://doi.org/10.1016/B978-0-08-097086-8.44037-7

Maglaya, Z. (2017) PH emphasizes the role of MSMEs for economic growth. Department

of Trade and Industry.

https://www.dti.gov.ph/archives/news-archives/ph-emphasizes-msmes-role-econom

y/

Malaluan, A. (2019). Performance of Micro and Small Enterprises in the Philippine

Setting. Journal of Economics and Management Sciences; Vol. 2, No. 1; 2019.

https://doi.org/10.30560/jems.v2n1p15
Maseko, N., & Manyani, O. (2011, December). Accounting Practices of SMEs in

Zimbabwe. Journal of Accounting and Taxation, 3(8), 171 – 181.

Mendoza, R. (2015). Financial Performance of Micro, Small, and Medium Enterprises

(MSMEs) in the Philippines. International Journal of Business and Finance

Research Vol. 9, No. 4, 2015, pp. 67-80

Musah, A., Gakpetor, E., & Pomaa, P. (2018, September). Financial Management Practices,

Firm Growth and Profitability of Small and Medium Scale Enterprises (SMEs).

Information Management and Business, 10(3), 25 - 37.

Mutua, J. M. (2015). Effect of bookkeeping on the growth of small and medium enterprises

in Chuka town. European Journal of Business and Social Sciences, 4(7), 102-112.

Nagy A. S,. Tuegeh, O., Tumiwa, J. (2020). "Factors Influencing MSMEs Performance

Measurement - A Literature Review," Annals of Faculty of Economics, University

of Oradea, Faculty of Economics, vol. 1(1), pages 151-162, July.

Ofoegbu, G., Okolo N., & Nsoke, U. (2021) "Accounting Practices and Its Effects on the

Growth of Micro and Small Scale Enterprises: Analysis from Nigeria" Universal

Journal of Accounting and Finance, Vol. 9, No. 4, pp. 574-587 2021. DOI:

10.13189/ujaf.2021.090405.

Okoli, B. E. (2011). Evaluation of the Accounting Systems Used by Small Scale

Enterprises in Nigeria: The Case of Enugu- South East Nigeria. Asian Journal of

Business Management, 3(4), 235–240.

Onaolapo, A., & Adegbite, I. (2014). The Analysis of the Impact of Accounting Records

Keeping on the Performance of Small Scale Enterprises. International Journal of

Academic Research in Business and Social Sciences, 4.

Pagaddut J. (2021). "The Financial Factors Affecting the Financial Performance of

Philippine MSMEs," Universal Journal of Accounting and Finance, Vol. 9, No. 6,

pp. 1524-1532, 2021. DOI: 10.13189/ujaf.2021.090629.

Paulino, M. A., Amora, J. T., & Castaño, M. C. N. (2021). Is the decision-making process a

mediator of the relationship between economic factors and international academic

destination?. International Journal of Trade and Global Markets, 14(2), 115-124.

Prieto, I.M. and Revilla, E. (2006), "Learning capability and business performance: a

non-financial and financial assessment", The Learning Organization, Vol. 13 No. 2,

pp. 166-185. https://doi.org/10.1108/09696470610645494

Santos, J. (2019). The Bookkeeping Practices of Micro, Small and Medium Enterprises

(MSMEs) in the Quezon Province: A Program for Business Sustainability. Vol. 3

No. 6 (2019): Ascendens Asia Journal of Multidisciplinary Research Abstracts.

https://ojs.aaresearchindex.com/index.php/AAJMRA/article/view/2746

Tangen, S. (2003), "An overview of frequently used performance measures", Work Study,

Vol. 52 No. 7, pp. 347-354. https://doi.org/10.1108/00438020310502651

Tollerson, C. (2012, May). The Data Decision-Usefulness Theory: An Exploration of

Post-1998.
 https://uh-ir.tdl.org/bitstream/handle/10657/ETD-UH-2012-05-465/TOLLERSON-.

pdf?sequence=2&isAllowed=y

Yousef, B. (2013). The use of accounting information by Small and medium enterprises in

the south district of Jordan (An empirical study). Research journal of finance and

accounting, 4 (6).
 Appendices

Appendix A. Survey Questionnaire

An Analysis on the Effect of Accounting Practices and Accounting Controls On

Business Performance Among Micro-, Small-, and Medium-Scale Enterprises
(MSMEs) in Quezon City, Philippines

INFORMED CONSENT FORM

Dear Respondent/s:
We, Cara Julia C. Baldovino, Caira Andrea P. Husmillo, Jose Dominick F. Lim, and Patrick
Joseph V. Maglanque, are fourth year undergraduate students at De La Salle
University-Manila and are currently taking up Bachelor of Science in Accountancy wherein
one of our course requirements for this term is a thesis paper.
Should you have any questions/concerns with regard to this survey questionnaire, please
feel free to contact us through any of the following e-mail addresses:
● [email protected]
● [email protected]
● [email protected]
● [email protected]

Purpose of the Study

You are being invited to take part in a research study. Before you decide to participate in
this study, it is important that you understand why the research is being done and what your
participation will involve. Please read the following information carefully and feel free to
ask the researcher if there is anything that is not clear or if you need more information.

The purpose of this survey is to gather data to determine the effect of accounting practices
and accounting controls on business performance of MSMEs in Quezon City. You are
chosen to participate as the group deems fit for you to provide a valuable contribution to
the study.

Study Procedures
Your participation in the research study will begin through the completion of a
questionnaire provided by the researchers. This involves you, as the participant, will be
providing the necessary general and specific information related to the topic at hand about
the company you are working for, such as your current assets, current liabilities, total
assets, total equity, total sales, and net income, among others.
Duration
To complete the survey questionnaire prepared by the researchers, it will take about
10 to 15 minutes of your time. This will ensure that you will be able to complete the
questionnaire

Voluntary Participation
Your participation in this study is voluntary. It is up to you whether or not you decide to
participate. If you decide to participate, you will be asked to sign this consent form. After
you sign this consent form, you are still free to withdraw at any time and without giving a
reason. Withdrawing from this study will not affect the relationship you have, if any, with
the researcher. If you withdraw from the study before data collection is completed, your
data will be destroyed.

Benefits
Through your participation, the researchers will be able to identify the effect of
accounting practices and accounting controls on business performance and its importance
to Micro-, Small-, and Medium-Scale Enterprises (MSMEs) in the research locale. There
will be no direct benefit to your participation in the study. However, we hope that the
information from this study may provide a valuable contribution to the research gap the
group has identified.

Confidentiality
Your responses in this research will be anonymous. Every effort will be made by the
researcher to preserve your confidentiality, including the following:
1. Assigning codes/pseudonyms for participants that will be used on all
research notes and documents.
2. Keeping survey questionnaires, notes, and any other personal identifiers
in a locked cabinet that only the researchers will have access to

Contact Information
This study was approved by the Research Ethics Review Committee of De La Salle
University. If you have any questions at any time about this study, or if you experience any
non-normative sensations as a result of participation, you may contact the researcher whose
contact information is on the first page. If you have any questions regarding your rights as a
research participant, or if problems arise which you do not feel you can discuss with the
Principal Investigator, please feel free to contact the Director of the Research Ethics Office,
Dr. Nelson B. Arboleda, Jr., at [email protected] or by calling (632) 524-4611 local 513.
 CONSENT

I have read the provided information, or it has been read to me. I have had the opportunity
to ask questions about it and any questions I have been asked have been answered to my
satisfaction. I understand that I will be given a copy of this form, and the researcher will
keep another copy on file. I consent voluntarily to be a participant in this study.

Print Name of Participant: _____________________

Signature of Participant: ______________________
Date: ____________________
(dd/mm/yyyy)

Print Name of Researcher: _____________________

Signature of Researcher: ______________________
Date: ____________________
(dd/mm/yyyy)

Print Name of Researcher: _____________________

Signature of Researcher: ______________________
Date: ____________________
(dd/mm/yyyy)

Print Name of Researcher: _____________________

Signature of Researcher: ______________________
Date: ____________________
(dd/mm/yyyy)

Print Name of Researcher: _____________________

Signature of Researcher: ______________________
Date: ____________________
(dd/mm/yyyy)

Section I: PERSONAL INFORMATION

Please provide some background information about yourself by ticking the most
appropriate box in each of the following questions:

1. Name: _______________________________________

115516608. Name of business: _______________________________________

115507648. Industry: _______________________________________

115514368. Years in operation: _______________________________________

115518528. Number of employees: _______________________________________

115509696. Classification (kindly check which is applicable):

Micro-enterprise

(Total Assets of 3,000,000 and below)

Small enterprise

(Total Assets of 3,000,001 to 15,000,000)

Medium enterprise

(Total Assets of 15,000,001 to 100,000,000)

Section II: ACCOUNTING PRACTICES

Adapted from Ibarra and Velasco (2015)

For each item, please indicate your agreement by putting a check mark on the box of your
choice. (1=Never, 2=Seldom, 3=Sometimes, 4=Frequently, 5=Always)

Accounting Practices 1 2 3 4 5

Accounting Method
 1. The company records revenues when they are earned, and not
when they are actually received.
Ang mga benta ay itinatala kapag ito ay kinita, di lamang
kapag natanggap.

115511872. The company records expenses when they are incurred,

and not when they are actually paid.
Ang mga gastos ay itinatala kapag ito ay natamo, di lamang
kapag nabayaran.

Bad Debts Estimation

1. The company regularly tracks the age of receivables not yet

collected.
Sinusubaybayan ng kompanya ang edad ng mga koleksyon na
hindi pa natatanggap.

115512000. The company estimates the collectible receivables

based on their age.
Tinatantya ng kompanya ang mga koleksyon base sakanilang
edad.

115516096. The company regularly tracks the historical percentage

of uncollectible accounts.
Sinusubaybayan ng kumpanya ang porsyento ng mga utang na
hindi makokolekta

Depreciation Method

1. The company tracks the age of its assets.

Binibilang ng kumpanya ang edad ng mga assets nito.

115523200. The company regularly determines the useful life of its

assets.
Sinusukat ng kumpanya ang useful life ng mga assets nito.

115516736. The company depreciates its assets proportionately and

periodically over the useful life of its assets.
Binaba-baan ang halaga ng mga assets ng kumpanya
sang-ayon sa nasukat na useful life.

115518208. The company derecognizes fully depreciated assets.

 Inaalis sa mga libro ng kumpanya ang mga assets na nagtapos
ng kanilang useful life.

Net Receivable Estimation

1. The company allots an allowance for sales discounts whenever

applicable.
Naglalaan ang kumpanya ng allowance para sa mga sales
discounts na maaaring matamo.

115523456. The company allots an allowance for sales returns

whenever applicable.
Naglalaan ang kumpanya ng allowance para sa mga sales
returns na maaaring matamo.

115521536. The company maintains an allowance for uncollectible

amounts.
Naglalaan ang kumpanya ng allowance para sa mga halagang
hindi na inaasahang makolekta pa.

Business Documentation

1. The company uses official receipts to record for business

documentation.
Gumagamit ang kumpanya ng mga opisyal na resibo upang
maitala ang mga naging kita at mga naging gastos.

115520512. The company uses billing invoices for business

documentation.
Gumagamit ang kumpanya ng mga billing invoices upang
maitala ang mga naging kita at mga naging gastos.

115515840. The company uses vouchers for business

documentation
Gumagamit ang kumpanya ng mga vouchers upang maitala
ang mga naging kita at mga naging gastos.

Payment Method

1. The company is capable of issuing cash (i.e. petty cash) for

payments.
 May kakayahan ang kumpanya na gumamit ng cash (i.e. petty
cash) upang magbayad.

115509760. The company is capable of issuing checks for

payments.
May kakayahan ang kumpanya na gumamit ng mga tseke
upang magbayad.

115507264. The company is capable of using credit cards for

payments.
May kakayahan ang kumpanya na gumamit ng mga credit
cards upang magbayad.

Section III: ACCOUNTING CONTROLS

Adapted from Ibarra and Velasco (2015)

For each item, please indicate your agreement by putting a check mark on the box of your
choice. (1=Never, 2=Seldom, 3=Sometimes, 4=Frequently, 5=Always)

Accounting Controls 1 2 3 4 5

Cash Management

1. The company keeps a bank account and deposits money into it.
Mayroong bank account ang kumpanya kung saan ito ay
nagdedeposito ng halaga.

115523328. The company maintains a record of movements in cash

accounts.
Itinatala ng kumpanya ang bawat galaw sa halaga ng cash na
mayroon ito.

115513216. The cash accounts are regularly checked and inspected

by authorized personnel.
Ang cash accounts ng kumpanya ay sinisiyasat ng mga
awtorisadong tao.

115508352. The company experiences no incidences of

discrepancies between actual and reported cash balances.
 Hindi nagkakaroon ng mga pagkakaiba sa balanseng naitala
sa mga libro mula sa aktuwal na balanse ng cash.

Fund Management

1. The company sets financial goals for future periods that

involve the use of company assets and capital.
Naglalapat ang kumpanya ng mga financial goals para sa
hinaharap, gamit ang mga assets at capital nito.

115507456. The company prepares periodic budgets.

Naghahanda ang kumpanya ng mga badyet para iba’t ibang
panahon.

115518080. The company does not exceed budgetary limitations on

projects.
Hindi lumalagpas ang gastos ng kumpanya sa mga nalapat na
badyet.

Expenditure Management

1. The company maintains a record of daily expenditures.

Itinatala ng kumpanya ang pang-araw araw na mga gastusin.

115518592. The company is able to settle periodic expenses.

May kakayahan ang kumpanya na tustusan ang mga gastusin
nito.

115508672. The company’s record of expenses are regularly

checked and inspected by authorized personnel.
Ang listahan ng mga gastusin ay sinisiyasat ng mga
awtorisadong tao.

115509184. The company experiences no incidences of

discrepancies between actual and reported expenses.
Hindi nagkakaroon ng mga pagkakaiba sa balanseng naitala
sa mga libro mula sa aktuwal na balanse ng mga gastusin.

Accounts Payable Management

1. The company maintains a complete and accurate record of its

outstanding payables.
 Mayroong kumpleto at eksaktong listahan ang kumpanya ng
mga hindi pa nababayarang halaga (o mga utang).

115516480. The company completely derecognizes payables once

paid.
Inaalis sa libro ng kumpanya ang mga hindi pa nababayarang
halaga (o mga utang) kapag nabayaran na ang mga ito.

115514688. The company is able to settle its payables on time.

Natutustusan ng kumpanya ang mga bayarin nito (o mga
utang) sa loob ng naaangkop na panahon.

115513984. The company regularly tracks the age of its payables.

Sinusubaybayan ng kompanya ang edad ng mga hindi pa
nababayarang halaga (o mga utang).

Financial Statement Preparation

1. The company regularly records financial transactions.

Itinatala ng kumpanya ang mga transaksyong pinansyal.

115522752. The company’s financial statements are regularly

reviewed and inspected by management.
Sinisiyasat ng mga awtorisadong tao ang financial statements
ng kumpanya.

Section IV: BUSINESS PERFORMANCE

Adapted from various studies

For each item, please indicate your answer on the space provided.

1. Current Assets

115515008. Total
Assets

115514304. Current
Liability

115519296. Total
Equity
 115410816. Total
Sales

115417088. Net
Income

For each item, please indicate your agreement by putting a check mark on the box of your
choice. (1=Never, 2=Seldom, 3=Sometimes, 4=Frequently, 5=Always)

1 2 3 4 5

Growth in Number of Employees

1. The company regularly hires additional employees to meet

growing operational demands.
Patuloy na kumukuha ng mga bagong empleyado ang
kumpanya upang matugunan ang mga lumalaking
pangangailangan sa operasyon.

115411456. The company is able to meet targeted employment

numbers periodically.
Nakakakuha ng sapat na bilang ng mga empleyado ang
kumpanya.

115415552. The firm is able to set increasing employment targets

periodically.
Tumataas ang target na bilang ng mga bagong empleyado sa
bawat paglipas ng panahon.

Product Quality/Customer Satisfaction

1. The firm receives favorable customer feedback on the quality

of products and services.
Nakakatanggap ang kumpanya ng positibong feedback mula sa
mga customer nito patungkol sa kalidad ng mga produkto and
serbisyo nito.

115765568. The firm sets an increasing targeted number of positive

customer feedback periodically.
 Patuloy na tumataas ang target na bilang nga mga positibong
feedback mula sa customers patungkol sa kalidad ng mga
produkto and serbisyo nito.

Level of Firm Productivity

1. The firm experiences a satisfactory level of firm productivity.

Nakakabuo ang kumpanya ng sapat na bilang ng mga produkto
at serbisyo.

115755712. The firm is able to set increasing productivity targets

periodically.
Patuloy na tumataas ang target ng kumpanya na bilang ng
mga nabubuong mga produkto at serbisyo.

Rest assured that all information will be kept confidential and used solely for the
purpose of this research. Thank you for participating in this survey.

Appendix B. Statistical Results

SEM Goodness-of-Fit Measures

RMSEA RMSEA CFI SRM
p-value R

0.084 0.000 0.78 0.079

9

Factor Loadings
# Latent Exogenous Coefficient ci.lowe ci.uppe SE Z p-val
Variable Variable / r r .
Loading

1 accounting acm1 0.773 0.666 0.880 0.05 14.12 0.000

5 1
2 accounting acm2 0.845 0.777 0.914 0.03 24.19 0.000
5 3

3 baddebt bde1 0.793 0.720 0.866 0.03 21.34 0.000

7 7

4 baddebt bde2 0.878 0.819 0.937 0.03 29.07 0.000

0 7

5 baddebt bde3 0.862 0.799 0.924 0.03 27.10 0.000

2 0

6 depreciation dep1 0.863 0.804 0.923 0.03 28.48 0.000

0 1

7 depreciation dep2 0.882 0.839 0.924 0.02 40.88 0.000

2 7

8 depreciation dep3 0.902 0.865 0.938 0.01 48.25 0.000

9 9

9 depreciation dep4 0.674 0.541 0.807 0.06 9.938 0.000

8

1 receivable nre1 0.886 0.832 0.940 0.02 32.31 0.000

0 7 6

1 receivable nre2 0.896 0.843 0.948 0.02 33.64 0.000

1 7 8

1 receivable nre3 0.793 0.720 0.866 0.03 21.39 0.000

2 7 8

1 busdocument bdc1 0.738 0.623 0.852 0.05 12.61 0.000

3 8 9

1 busdocument bdc2 0.812 0.736 0.888 0.03 20.88 0.000

4 9 7

1 busdocument bdc3 0.789 0.703 0.875 0.04 17.92 0.000

5 4 6

1 payment pay1 0.443 0.272 0.614 0.08 5.071 0.000

6 7
1 payment pay2 0.746 0.658 0.834 0.04 16.66 0.000
7 5 2

1 payment pay3 0.522 0.405 0.639 0.06 8.749 0.000

8 0

1 cash cas1 0.678 0.575 0.781 0.05 12.90 0.000

9 3 6

2 cash cas2 0.558 0.431 0.685 0.06 8.600 0.000

0 5

2 cash cas3 0.690 0.577 0.804 0.05 11.901 0.000

1 8

2 fund fun1 0.823 0.767 0.879 0.02 28.79 0.000

2 9 4

2 fund fun2 0.738 0.659 0.817 0.04 18.28 0.000

3 0 3

2 fund fun3 0.805 0.749 0.862 0.02 27.97 0.000

4 9 6

2 expenditure exp1 0.741 0.649 0.833 0.04 15.77 0.000

5 7 8

2 expenditure exp2 0.787 0.719 0.856 0.03 22.45 0.000

6 5 3

2 expenditure exp3 0.695 0.617 0.774 0.04 17.37 0.000

7 0 0

2 expenditure exp4 0.683 0.572 0.795 0.05 12.03 0.000

8 7 1

2 payable apm1 0.781 0.715 0.846 0.03 23.36 0.000

9 3 7

3 payable apm2 0.613 0.503 0.724 0.05 10.87 0.000

0 6 0

3 payable apm3 0.752 0.685 0.818 0.03 22.17 0.000

1 4 4
 3 payable apm4 0.703 0.623 0.783 0.04 17.25 0.000
2 1 7

3 statement fsp1 0.859 0.809 0.908 0.02 34.05 0.000

3 5 6

3 statement fsp2 0.771 0.696 0.845 0.03 20.25 0.000

4 8 6

3 financial fin1 0.990 0.872 1.109 0.06 16.37 0.000

5 0 2

3 financial fin2 0.818 0.691 0.945 0.06 12.58 0.000

6 5 0

3 financial fin3 0.150 -0.030 0.330 0.09 1.634 0.102

7 2

3 financial fin4 0.300 0.192 0.408 0.05 5.430 0.000

8 5

3 nonfinancial non1 0.741 0.661 0.821 0.04 18.20 0.000

9 1 9

4 nonfinancial non2 0.760 0.692 0.828 0.03 21.95 0.000

0 5 5

4 nonfinancial non3 0.787 0.723 0.850 0.03 24.14 0.000

1 3 8

4 nonfinancial non4 0.578 0.448 0.708 0.06 8.721 0.000

2 6

4 nonfinancial non5 0.700 0.596 0.805 0.05 13.110 0.000

3 3

4 nonfinancial non6 0.809 0.722 0.897 0.04 18.18 0.000

4 5 4

4 nonfinancial non7 0.878 0.838 0.919 0.02 42.48 0.000

5 1 8

PLS-SEM Variance Explained (VAREX)

# Item R2
1 acm1 0.597
2 acm2 0.714
3 bde1 0.629
4 bde2 0.771
5 bde3 0.743
6 dep1 0.746
7 dep2 0.777
8 dep3 0.813
9 dep4 0.454
10 nre1 0.785
11 nre2 0.802
12 nre3 0.629
13 bdc1 0.544
14 bdc2 0.660
15 bdc3 0.622
16 pay1 0.196
17 pay2 0.557
18 pay3 0.272
19 cas1 0.460
20 cas2 0.311
21 cas3 0.476
22 fun1 0.677
23 fun2 0.545
24 fun3 0.649
25 exp1 0.549
26 exp2 0.620
27 exp3 0.484
28 exp4 0.467
29 apm1 0.610
30 apm2 0.376
31 apm3 0.565
32 apm4 0.494
33 fsp1 0.738
34 fsp2 0.594
35 fin1 0.980
36 fin2 0.669
 37 fin3 0.023
38 fin4 0.090
39 non1 0.549
40 non2 0.577
41 non3 0.619
42 non4 0.334
43 non5 0.491
44 non6 0.655
45 non7 0.772
46 accounting 0.799
47 statement 0.899
48 financial 0.253
49 nonfinancial 0.862

PLS-SEM Regression Coefficients of Indicators

Latent Endogenous Coefficient/Regression ci.lowe ci.uppe p.valu
# SE Z
Variable Variable Coef r r e
1 accounting baddebt 0.212 0.022 0.401 0.09 2.191 0.028
7
2 accounting depreciation 0.195 -0.128 0.517 0.16 1.183 0.237
4
3 accounting receivable 0.105 -0.105 0.315 0.10 0.977 0.328
7
4 accounting busdocument 0.557 0.270 0.844 0.14 3.810 0.000
6
5 accounting payment -0.044 -0.377 0.289 0.17 -0.25 0.796
0 9
6 statement cash 0.146 -0.576 0.868 0.36 0.396 0.692
9
7 statement fund 1.092 0.322 1.861 0.39 2.780 0.005
3
8 statement expenditure 1.140 0.219 2.060 0.47 2.427 0.015
0
9 statement payable -1.391 -2.832 0.050 0.73 -1.89 0.058
5 3
1 financial accounting -0.708 -1.025 -0.390 0.16 -4.36 0.000
0 2 9
1 financial statement 0.328 0.017 0.639 0.15 2.068 0.039
1 9
1 nonfinancial accounting 0.285 0.108 0.461 0.09 3.158 0.002
2 0
1 nonfinancial statement 0.692 0.533 0.852 0.08 8.489 0.000
3 2